Ensuring political stability and default loan management will be the key challenges to banking sector next year, said Bangladesh Bank Governor Atiur Rahman in an exclusive interview with the Dhaka Tribune just before welcoming the New Year 2015.
He apprehended the businessmen might resort to street protests during the year if transportation faces disruption due to political violence as he foreseen the possible emerging situation the banking and financial sector that passed through indiscipline, mainly on credit management.
The governor said in the departing year, business confidence was returning gradually while entrepreneurs were dispelling their fears of political uncertainty.
As a result, all economic indicators including credit disbursement, export, import and remittance got motion in the last two months, he said, adding that if political stability prevails next year, performance of the banking sector will improve.
The country’s business remained almost stagnant in 2013 in the wake of political unrest. As a result huge loan accounts turned default because of decline in cash flow in 2014, added Atiur.
Focusing on rescheduling, he explained that the central bank relaxed the rescheduling policy to extend the installment period for businesses affected by political stalemate.
Many large groups rescheduled their loans, taking advantage of the relaxed policy, but failed to continue the installment payment.
The head of Bangladesh Bank advised that banks should concentrate more on nursing default loans regularised following the rescheduling prescription.
“We have provided flexible terms for businessmen in order to adjust their business losses amid investment crisis.”
Drawing a reference to China, he said the country adjusts to a new situation providing flexibility in rules and regulations instead of closing down business during crisis.
“We are also trying to do exactly the same only to give a boost to the business through adjustment and flexibility.”
Despite stagnant business the country achieved 6.01% growth of GDP for business-friendly policy taken by the central Bank, he claimed.
Atiur hopes that the growth would hit over 6.5% in the fiscal year 2015.
BKB, ICB Islamic Bank, RAKUB and BASIC Bank are mainly accounted for high interest rate in the banking sector, he said.
Criticising the banks’ board of directors the central bank chief said banks will face challenge to ensure quality loan disbursement due to interference by board members.
“We have empowered the banks’ CEOs so they can raise their voice against the board irregularities.”
He stressed good governance of the banks so that the boards cannot force the management to provide loans for little known clients.
The BB chief admitted that lack of good governance is the main problem in the banking sector.
He suggested the new banks take lesson from existing default banks and avoid default status.
“We have allowed foreign loan inflow at an average of 5% interest rate which will put an impact on reducing local lending rate.”
A total of $5bn foreign loan entered the market from 2009 to till now. Bangladesh Bank has tightened its monitoring on the proper use of foreign loan.
Exporters got loans at 3% interest rate from the central bank’s export development fund which also put pressure on banks to reduce their lending rate.