The amount of cash in the hands of people outside the country's banking system—known as 'mattress money'—is around Tk300,000 crore, said Association of Bankers Bangladesh (ABB) chairman Masrur Arefin.
He also said that the desired investment and credit flow in the economy is being hampered as this huge amount of money is not coming through the banking channels.
He made these remarks at a seminar organized by Brac EPL Stock Brokerage at a hotel in the capital on Tuesday (January 20).
At the seminar, Arefin said that the default loan situation in the country's banking sector is not an ordinary non-performing loan (NPL) crisis; rather, the real picture has been hidden for a long time.
"We have been living in a kind of 'paradise of illusion' for so long. I thought the default loan rate was 9%. In reality, it was around 35%. Now at least the truth has come out. And only when the truth is known can we move forward."
Regarding the management of non-performing loans, the ABB chairman said that it is reasonable to start a new journey by completely writing off the rotten loans. This may increase the capital pressure for a few years in the beginning, but if it is presented to the public with transparency and honesty, new income will be generated and the revenue crisis will also be reduced to a large extent.
He said that the overall average rate looks high because the non-performing loans of some banks are very high. However, in reality, the NPL rate in 15 to 20 banks is below 4%.
According to Masrur Arefin, non-performing loans are mainly a management and good governance problem. In addition, the issue of ‘handholding’ or support by standing by the businessmen is also important. He commented that the creation of new non-performing loans is mainly the result of weak supervision and lack of good governance.
Praising the role of the central bank, the ABB chairman said that Bangladesh Bank is currently actively strengthening supervision and monitoring, as a result of which the boards of directors of banks are now much more cautious. His hope is that asset quality will not deteriorate further; rather, it will gradually improve.
Regarding the banks' investment in treasury bills and bonds, he said that this is a natural consequence of the situation due to low credit growth. "Excluding bad banks, the average liquidity coverage ratio is above 100%. Currently, our overall liquidity is 157.52%. City Banking's liquidity is 216%—which is really surprising," he said.
He also said that there is currently little interest among customers to take loans. Political uncertainty and high inflation were the main reasons behind this. However, now the political situation is stabilizing somewhat and inflation has come down from 12.5% to about 8%. However, there are still concerns about food inflation.
Regarding government debt, Masrur Arefin said that since there was no demand for loans, the only realistic way for banks to keep their deposits was to invest in government treasury bills and bonds. "This is a completely legal and logical decision. The government also needed money at that time," he said.
According to him, this is a temporary situation. After the elections, the economy will pick up again. “My 30 years of experience tells me that everything will gradually return to normal,” he added.
Strongly criticizing looting, money laundering, directed and fake loans in the banking sector, the ABB Chairman said that these practices are very dangerous and unacceptable in any way. However, even during the crisis, 10 to 15 banks have become relatively strong and regional institutions. He commented that two or three of these banks can also be considered global institutions.
He said that according to international standards, the banking sector is required to have a capital adequacy ratio of 12.5%, but currently it has fallen to about 4%, which is worrying. However, he also mentioned that some realistic and positive steps have been taken in recent months.