Banking sector to face erosion under new loan rescheduling package

Business Report
Prof Wahiduddin Mahmud has said the banking sector should be taken to global standards as the country heads towards the middle-income bracket but the present loan rescheduling system is not supportive to such requirement. He was speaking at BIDS last week.
The rise in default loans stemming from financial scams and weak supervision by the central bank are eroding the confidence of customers in the banking sector.
In the recent past, corporate governance in the banking sector improved a lot, but the financial health of many banks has started to deteriorate alarmingly, analysts said at a Critical dialogue organised by BIDS at the Six Seasons Hotel in the capital.
Rising inequity and the declining trend of poverty reduction have raised question about the high GDP growth figure being recorded in recent years, they said. The banking sector should be taken to global standards as the country heads towards the middle-income bracket, said Wahiduddin Mahmud, a former adviser to a caretaker government.
The cost of foreign transactions for local banks will increase unless global standards are established in the banking sector, he said, while delivering his speech as the guest of honour at the inaugural session of the two-day conversation. Reforms were made in the past to take the banking sector to global level, he said.
“But it appears that we are switching away from global standard,” he said, citing undue interference in bank operation, loan restructuring and recent changes in loan classification rules. If research shows that policy changes for loan classification are necessary then it is warranted.
“And if the loan classification criteria are changed without research, it will appear to us that these are done amid pressure from businessmen. And it will not bring any good for the banking sector,” he added.
At the first session of the conversation, Monzur Hossain, senior research fellow of BIDS, presented a paper titled “Banking sector in Bangladesh: Where are we heading to”.
State-run banks have accounted for the highest share of non-performing loans (NPLs), while the private ones are struggling to keep it low by loan restructuring and rescheduling, the paper said.
Default loans in the banking sector stood at Tk 93,370 crore as of December last year, which is 10.33 percent of the total outstanding loans.
Bangladesh Association of Banks, a platform of the sponsors of private banks, declared 6 and 9 percent interest rate for deposit and lending respectively, but it did not work at all, Hossain said.

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