PM should intervene to save banks
Getting credit is a right to all, provided ones' has credit worthiness. Two plus two equal to four like enumeration can give you right answer and hence bank loan in private sector hitting nearly 19 per cent superseding the target 16.2 per cent is solace to many. But reality tells other thing. Anon Tex Group episode is the last example. A daily tells us, when one applies for a loan at Janata Bank, the application goes through at least five layers of scrutiny. But in case of Anon Tex Group, none of these processes seemed to have been followed. If they were, apparel exporter should not have been able to take out loans amounting to TK 5504 crore, despite failing to pay back its previous loans. Not only that, Janata's loans to Anon Tex Group accounted for more than 25 per cent of the state owned bank's capital base, which was in violation of the single borrower exposure limit set in the Bank Company Act 1991.
The Group which has an annual turnover of USD 150 million has failed to make regular instalment payments, leaving Janata with a massive hole in its capital base. This is not the one example. According to the Bangladesh Bank (BB), such a case is ensued in at least 20 banks who were crossing 25 per cent limit of their capital base in giving loans to a few.
Loan giving culture has lost its inclusiveness rather oiling few heads which are already oiled. As a result mounting up of non-performing loan (NPL) has made the entire financial sector vulnerable. It reached up to 11 per cent and it will hit 17 per cent when it is to be made rescheduled and restructured. Twenty banks including Farmers bank lost their capacities to further sanction of loans because of liquidity crisis due to over sanctioning to a few. Their depleting capital bases are being made up by spoon feeding from people's money through budgetary provision.
Instability of financial sector has reached such a pass that it needs immediate interference by Prime Minister and we are demanding so. One after another scam, mounting up of non-performing loan, increasing default culture by the big houses and concentration of loans in few pockets remembering us the saga of 22 families in Pakistan period against those Bangabandhu fought for his life -- made financial sector volatile. So we demand for Prime Minister's intervention.
The first part of the current financial year saw a hike of private sector credit (the nature of it has been described up). So it is hoped the next monetary policy would be meant for reining in private sector credit within its target. Private sector credit rose to 18.13 per cent instead of its target to 16.3 per cent. The new monetary policy, declared in 29th January has enhanced the target of private sector credit to 16.8 per cent which was originally 16.3 per cent. Not only that the new monetary policy also enhanced AD (advance-deposit ratio) to save banks from liquidity crisis.
Though private sector has enhanced target of loan giving, total internal loan target will remain confined to 15 per cent. The BB authority is more eager to inflation particularly for this election year. The usual trend of election year is seemed to have more money in circulation. The BB is cautious about inflation not to let it be gone beyond 6 per cent. Policy rate that is REPO and reverse repo will remain unchanged. They are to be kept at 6.75 and 4.75 per cent respectively.
Other macro variables in real economics are running well. Instability in financial sector will infest other sectors. The last monetary policy is a due effort to address ills in financial and other real sectors of the economy. Here it points to some challenges both of financial and real sectors. But question lies otherwise so far financial sector is concerned.
Aptness of a monetary policy depends on its successful implementation. We are lacking here. Our regulatory bodies lack their mandatory status. Bank Company Act of 1991 is far short of its applicability. Banks are running at their sweat will and at official and unofficial direction of banking and other financial institutions division of the finance ministry.
The main regulatory body Bangladesh Bank here is a toothless tiger. For example, the main headache of Bangladesh Bank is to control broad money (m2) in circulation particularly for this year.
But banks are showing thumb to BB and playing at their sweat will in giving loans without any judgement. BB has nothing to do. The world economy is returning to booming again. We have rich potentiality in exports. Imports are also going to revamp due to rise in machinery and other capital goods imports.
As a result, the trade deficit would hit a record USD 13 billion this fiscal year due to higher import payments. The widening trade deficit would put pressure on the country's foreign exchange reserve. The imports of capital machinery and industrial raw materials have registered a significant growth in the first half of 2017-18. So a prudent monetary policy is not only sufficient, its applicability is also needed.
If government will not borrow sufficiently from banking system, then private sectors are not left uncared. But it needs judicious and well thought distribution of credit in the interest of our growth, employment and investment.
Bangladesh's banking system is going through a strange and critical phase right now. The banks are plagued by huge frauds. Bangladesh Bank investigations are revealing on a regular basis how different phony organizations had taken out huge sums in fake loans?
How banks have violated all banking norms to lend to shady companies? How some flagship names in business with long dubious reputations have viciously schemed to get new loans in the name of repaying old loans which they then usurped up as well without paying a taka. So we demand for immediate interference of Prime Minister.
The writer is a freelance contributor and can be reached at [email protected]