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Sanem: BB fails to fix ailing banking sector

  • Published at 10:11 pm May 9th, 2019
Sanem
Speakers at a meeting organized by Sanem on the quarterly review of Bangladesh economy at Brac Centre in the capital on Thusday, May 9, 2019 Courtesy

The crisis in the banking sector could hamper achieving the SDGs by 2030

South Asian Network on Economic Modeling (Sanem), a local think-tank on Thursday said the country’s banking sector was on the wrong path, causing the economy to bleed.

“The entire economy of the country bleeds due to the vulnerability of the banking sector.” said Sanem Executive Director Dr Selim Raihan, adding that our banking was going backward and lagging behind international best practices. 

He made the remarks, addressing a quarterly review brief on the Bangladesh economy at Brac Centre in the capital. 

Sanem Chairman, Dr Bazlul Haque Khondker, and Fellow, Dr Sayema Haque Bidisha, were also present at the program.

Expressing frustration, Selim Raihan said the situation in the banking sector would be at its worst if the government eventually relaxes the definition of defaulting loans, and loan rescheduling policies to favour bank defaulters.

The crisis in the banking sector could hamper achieving the sustainable development goals by 2030 and other targets, he warned.

“Bangladesh Bank, being the regulatory authority, failed to fix the crisis of banks, as it is unable to play its independent role,” he said, adding that no punishment by the authorities against irregularities was visible either.

The regulatory authorities treat the state-owned banks differently than private commercial banks, distorting banking rules, added Selim, also a professor at the Dhaka University Economics Department.

Seeking specific directives in the upcoming national budget to revive the banking sector, he said the government must address the mismanagement of banks with an iron hand.

Forming the proposed bank commission was an urgent need, he added.

The Sanem quarterly review said the banking sector was in a huge crisis as the number of non-performing loans was rising amid weak regulation and shaky institutional structures. 

“Political patronage further debilitates the banking sector,” it said.

The crisis was a culmination of the prolonged structural problems in the banking sector, the review points out.

Bank depositors now lack confidence in banks,  the review observed.

Sanem, in the quarterly review, says the country has many achievements to be proud of,  like a higher per capita income and the reduction of poverty, but it has to do a lot more to achieve sustainable development goals by 2030, and then a developed nation by 2041.

Concerns for the economy 

Sanem says the high growth in private consumption in the country does not match with low exports and remittance growth, which is one of the major concerns. 

While the manufacturing sector has witnessed substantial growth it is not reflected in export growth and private investments, it observed.

The high manufacturing growth and fall in the incremental capital output ratio does not match with the poor business environment, says Sanem.

Quality of growth is another big concern, said the think-tank, and that GDP growth alone cannot reduce the poverty rate and inequality in society.

Nine recommendations

Sanem put forth a nine-point recommendation, including trade policy reform to advance the country’s economy.

The recommendations include implementation of tax reforms for high revenue generation, reforms in  the banking sector, better foreign exchange rate management, and diversification of export-products.

Sanem said implementation of the government’s mega projects like Padma bridge and the fast track implementation of special economic zones would give a boost to the economy.

The think tank believes that policies and programs should be taken up immediately to rapidly generate employment for the vastly unemployed population in the country.

 On allocations in the upcoming budget, Sanem said a clear roadmap was needed for the development of the education and health sectors to reduce poverty rates.