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Rehman Sobhan: This is a dangerous situation for a sustainable financial system

  • Published at 01:51 am June 25th, 2018
  • Last updated at 01:52 am June 25th, 2018
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'But now the capital market is non-functioning and industries are heavily dependent on commercial banks for long term loans'

At the annual Centre for Policy Dialogue’s (CPD) budget dialogue, Professor Rehman Sobhan dwelt on the unusual and unsustainable banking trends in Bangladesh.

“Commercial banks are heavily dependent on short-term deposits to invest in long-term projects,” he said while addressing at CPD Budget Dialogue 2018 at Lakeshore Hotel on Sunday.

Prof Rehman Sobhan said everybody is familiar with the non-performing loans (NPL) which started during late president Ziaur Rahman and carried over by the successive governments over the years, which is not a problem of this government or that government.

He said historically the large industrial projects are largely financed by capital market and specialized banks.

“But now the capital market is non-functioning and industries are heavily dependent on commercial banks for long term loans,” he said.

He observed that these commercial banks’ dependence on short term deposits to invest in long term projects is not the usual practice in banking. “This is totally unusual and this is a dangerous situation for a sustainable financial system”.

He also said Bangladesh is behind in economic progress compared with Vietnam and other developing countries. Bangladesh exports only $40 billion while Vietnam’s export is over $200 billion, he added.

CPD executive director Dr Famida Khatun made a presentation on the analysis of the 2018-19 national budget while Planning Minister AFM Mustafa Kamal was the chief guest at the discussion and former commerce minister and BNP standing committee member Amir Khasru Mahmood Chowdhury spoke on the panel.

Representatives from different government and non-government bodies and former bureaucrats also spoke on the occasion while CPD distinguished fellow Prof Mustafizur Rahman moderated the discussions.

Planning Minister AFM Mustafa Kamal disagreed with the analysis of the banking sector.

“Everybody is talking about the looting of the banking sector. But I don’t think the situation is so bad that banks are failing to pay depositors,” he said adding that the government will not spare anybody if found guilty.

“The government will take action against whoever is guilty and already some managing directors of banks are in jail,” in reply to former commerce minister and BNP standing committee member Amir Khasru Mahmood Chowdhury’s allegations that CEO of banks are pillaging their institutions to the point where depositors are unable to withdraw their savings, pointing at Farmer’s Bank.

“The income of the 5% in the top level has increased astronomically. These people are involved in the bank looting. But there is no action against them by the government. Rather, the government is helping them. Who are they everybody knows it,” he said.

He alleged that the people who looted the share market are buying properties in Dubai, Canada and other countries. “If NBR wants to catch them, they can easily identify them”.

He criticized the government for cutting taxes of bank owners and increasing the taxes of the lower income people.