Bank (BB) Deputy Governor Mr. Shitangshu Kumar Sur Chowdhury has said
the central bank has allowed borrowing funds from foreign lenders to cut
interest rate to stimulate economy. Despite our repeated approach,
banks are still charging high rates- not conducive to the growth.
rate should be reduced further to support private sector growth and we
are pressing banks to cut their lending rates as they hold excess funds
in their cash vaults, he said noting that the high lending rate
increases the cost of business and discourage entrepreneurs to invest
The central bank top official was talking with The Daily
Observer and expressing his views on some burning issues like high
interest rate, foreign currency borrowing by corporate bodies raised by
top bankers of some commercial banks already published in the daily
under the headline "Top Bankers Talk With The Daily Observer".
have allowed corporate bodies to borrow foreign currency loans as banks
do not pay them loans at fair rates. This has already produced good
results", deputy governor of Bangladesh Bank said.
Driven by high
lending rates, most private and foreign banks earn hefty profits every
year when their contribution to the economy once was questionable.
But the situation has been changed now thanks to the central bank's inclusive growth strategy, he said.
Kumar Sur Chowdhury who is popularly known as S.K Sur Chowdhury said
Bangladesh Bank remains vigil round the clock to maintain stability of
growth and ensure financial stability. Because, vulnerabilities in the
financial system could complicate the smooth implementation of monetary
policy, limit the policy choices in response to external shocks, and
weaken monetary transmission.
"Maintaining financial sector stability
through remedial measures to address vulnerabilities and manage crises
is crucial and very challenging task for a central bank like the BB. We
are now working to assess the recent reform measures on the real sector
for ensuring inclusive and stable growth in the economy", he said.
Shitangshu Kumar Sur Chowdhury is performing his responsibilities as a
Deputy Governor has over 33 years of extensive and versatile central
banking experience in managing critical supervisory issues of the
Before this position he was in a key position as Executive
Director in the Supervision of banks of the country. He has been playing
vital roles in the development process in the fields of agriculture
financing and financial stability in Asia pacific region.
He is the
chairman of SEANZA banking supervising Forum and also chairman of the
Bangkok based regional agricultural forum APRACA-Asia pacific Rural and
The reforms that have taken place over the
past two decades helped the Bangladesh Bank to evolve to a stronger
position compared to the past. These reforms enabled the central bank to
govern the financial sector in a more focused and objective manner.
lending rate of banks remained a hot topic in banking industry since
long as it has squeezed credit flow to the private sector, the driver of
the economy. Under the shed of market economy, Bangladesh Bank has
asked banks to keep spread within a limit. But many banks do not follow
Banks in general are free to charge/fix their
deposit and lending rate. Cap on rate of interest on lending in all
sectors other than pre-shipment export credit (7%) and agricultural
loans (13%) have recently been withdrawn.
"As some banks are
suffering problems with huge excess liquidity. Now they can finance many
potential projects at lower rates. We are trying to cut the rate
further to stimulate the economy", S.K. Sur Cowdhury said.
the central bank has put more importance to increase the quality of
assets and efficiency of banks. Due to increasing default risks of
loans, the classification and provisioning system has been revised
several times and made it more stringent.
" Still our banking system
is plaguing with a huge amount of classified loans. But the volume has
began to decline. So it is needed to maintain a standard asset quality
and so need to follow related prudential regulation", Chowdhury said.
banking industry in Bangladesh has flourished over the years, making
double-digit profit percentages, sustaining growth and surviving
cut-throat competition while providing attractive returns to
shareholders. However, the greed for more without befitting platform and
fundamentals, brings its own challenges and questions in people's
While the efficiency and profitability of banks have
increased, there is still an unfinished reform agenda for the banking
sector. The financial health of the state-owned commercial banks is
still fragile and a number of private banks are vulnerable, owing to
exposure to the declining stock market. A few banks are fully compliant
with Basel II standards.
"We have already conducted stress testing on banks. Most banks have been found at moderate level', Chowdhury said.
testing at banks has usually been run by a single group that controls
the models and analytics. That has made sense, but as the requirements
become more onerous, banks will have to involve more of the organization
in a hub and spoke matrix rather than continue to rely on a single
BB deputy Governor said that stress testing now mandatory for the scheduled banks.
image of the banking industry has many times been tarnished by several
stories regarding the owners in recent media releases. Despite the
considerable progress made, foreign countries are still somehow treating
activities of the country's banking industry as questionable.
between corrupt commercial bank officials and businessmen contributes
to the problem of bad loans. Extreme pressure from high ups, rampant
insider borrowing, lack of impunity and frequent examples of arrogance
by the defaulters towards the regulators and supervisors caused the
decay of the system. But new regulations and effective supervision have
improved the situation", S.K Sur Chowdhury said.
Banking experts say
the supervision of Bangladesh Bank has improved a lot in recent time
but remains constrained by a lack of autonomy in hiring skilled and
professional staff. The risk and compliance field is "one of the hottest
jobs in banking right now," said a top banker of a private commercial
At a time when banks are trimming staff to lower expenses, one
area of hiring remains hot: risk and compliance. Banks, wary of being
penalized for violating new regulations introduced since the present
governor Dr. Atiur Rahman assumed the office, are staffing up on risk
and compliance personnel in Bangladesh and elsewhere.
In this regard,
BB deputy governor said there were issues with lack of compliance on
part of the commercial banks. One such area is the insider-borrowing
problem. But those days have gone. The situation has improved a lot. Now
banks are not allowed to involve in this types of lending", BB deputy
Replaying to a question, BB Deputy Governor said the
central bank's strict supervisory role has unearthed the recent loan
scandals like Hall Mark of Sonali Bank, which have dwindled crore of
taka from the system.
"We have gradually developed the rules and
procedures along with the fit and proper test criteria to maintain
financial sector discipline. These changes have increased financial
intermediation significantly and enhance financial deepening", Chowdhury
To address the growing demand for a fast, secure and
state-of-the art payment system and reduce the cost of transactions, BB
took initiatives to establish country-wide electronic payment
infrastructure replacing the traditional paper based clearing and
"Our goal is to transform the decades-old traditional and manual system to a modern, automated system', Chowdhury said.
value of land has increased abnormally due to increasing trend of
purchasing of land. " But we have restricted banks bank's loan or credit
facility for purchasing land in order to channel credit towards
productive areas", SK Sur Chowdhury said.
Bangladesh banking sector
has much ahead now. We have rationalized all charges, set single
borrower exposure limit waived for power sector, now implementing
Basel-II and going to introduce Basel-III, he said.
introduced a detailed guideline on environmental risk management to
assess environmental risk along with the credit risk for an overall
credit rating prior to disbursement of loan and credit facility, he
"We have set the annual agriculture and rural credit
disbursement target at a 2.5 per cent of their total loans and advances
which was largely achieved. In fact, BB's financial inclusion is a
success story in the global banking industry and many Asian countries
are now follow us", SK Sur Chowdhry said.
He said banks in many
countries have suffered a lot due to their high degree of
interconnectedness, credit risk overhang, and difficulties in unwinding
their investments in complex financial derivatives.
in regulatory requirements, rapid development of the financial
environment and infrastructure, as well as the ongoing management of
economic cycles have all played their roles in our response to the
crisis of the last decade.
"For that reason, we need to evaluate the
effectiveness of our policy tools continuously, in particular, the
strength of monetary policy transmission mechanism in the changing
financial environment', he said.
Bangladesh Bank has started
introducing strategic changes in its existing supervision techniques for
ensuring stability in the financial sector. It is gradually
complementing its traditional approach of micro-prudential regulation
and oversight with macro-prudential techniques to identify systemic
risks well ahead of when they materialize and taking precautionary or
"Most importantly, Bangladesh Bank initiated
implementation of a Bank Intervention/Resolution Framework, and a Lender
of Last Resort Framework last year under its contingency planning
These frameworks are expected to be functional within a few years, Deputy Governor of Bangladesh Bank said.
RBI Chief Says In An Interview