Banks are now showing profits by turning interest on loans as income without collecting debts, said Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI).
"The banks are also distributing dividends from these profits, and the government is collecting taxes from this. Banks, in reality, have earned no actual income, and depositors money is being looted," he said.
He made the observation on Saturday (13 July) at a discussion hosted by Economic Reporters Forum (ERF) at its Dhakas Paltan auditorium.
"This means we are selling the plates to buy biryani. How long can banks continue to operate like this? Deposits will run out, and banks will not be able to return the depositors money," Mansur added.
The ERF event titled "Causes of Distress in the Banking Sector in Bangladesh" was chaired by ERF President Refayet Ullah Mirdha and moderated by ERF General Secretary Abul Kashem. Dr Ahsan H Mansur said "the financial sector "needs to be cleaned".
"Problems in the banking sector are intentionally kept alive instead of resolving. This is akin to sweeping the smelly dirt under the carpet, which does not really remove the bad odour. It will eventually re-emerge," he said.
Mentioning that various attempts have been made to hide irregularities in the banking sector, the PRI chief executive said, This act of hiding information is causing the stink of irregularities in the banking sector to spread throughout the economy.
"Hiding bad loans will not solve the problem of irregularities, corruption, and money laundering of this sector," he said adding "an initiative must be taken to clean up [reform] the financial sector. It should be initiated by the government and involving Bangladesh Bank."
He said it is not only the export data that gets hidden, "Data from Bangladesh Bank shows non-performing loans is at 11 percent, but in reality, it is around 25 percent. The financial sector cannot continue like this for much longer. Due to a lack of supervision, we have lost control of our currency market, and inflation has exceeded beyond our control."
He said the banking sector has been allowed to deteriorate to this level. "This has increased irregularities and created a crisis of confidence. A situation has now been created where banks cannot even save themselves. How will it then secure the depositors deposits?" he asked.
Mentioning the article presented by Obaidullah Roni and Sanaullah Sakib at the event, Mansur said, the government has garnered praise for constructing infrastructures like the Padma Bridge, but now this is being overshadowed by high inflation, bad loans, and financial scandals.
"The responsibility for these issues lies with Bangladesh Bank as the regulatory authority. If initiatives are not taken now, a major crisis will develop in the countrys banking sector," he warned.
Mentioning that Bangladesh is becoming more dependent on loans as the financial distress increases, the PRI executive director said this is gradually diminishing the countrys ability to obtain loans.
"On the other hand, the government cannot collect enough revenue for budget implementation. Now, there is neither enough money nor dollars for budget execution," he added.
Dr Ahsan H Mansur said the government is now unable to pay bills in various sectors, including the energy sector, due to a lack of sufficient dollars. "If health is not good, the burden cannot be borne. Now banks can no longer lend to individual sectors or the government due to weakness," he observed.
Mentioning that the growth of bank deposits is between 8.5 percent and 9 percent now, Mansur said it could reach up to 10 percent if it increases this year. Accordingly, deposits might amount to approximately Tk170,000 crore this year, he said.
"How will banks meet the target set in this fiscal years budget if the government takes a loan of Tk137,000 crore? Where will the private sector find money?" he asked when the budget has projected a 27 percent growth for the private sector credit.
"However, private sector investment has been fluctuating between 22 to 23 percent so far. If bank deposit growth does not increase while the government needs to borrow, how will 27 percent growth be achieved?" he asked.
"It was said before the elections that extensive reforms would be brought to the financial sector. But six months have passed, and nothing has been done so far. This is very disappointing," Mansur said. "For the sake of the country, it is now very urgent to reform the banking sector," he added.
