Several managing directors of the banks have said the sector is passing the most difficult time, as neither substantial deposits are being made, nor loan collection is increased
A prevailing cash crisis in the country’s banking sector is preventing many large and small-scale banks from providing loans.
Several managing directors of the banks have said the sector is passing the most difficult time, as neither substantial deposits are being made, nor loan collection is increased.
The reason for this, they mention, is the liquidity crisis of the bank sector, which has reduced investment funds and increased the tendency of borrowing from the call money market.
This has increased interest rates in the interbank call money market, which has reached the highest in the last five years, they say.
Analyzing the situation of the liquidity situation in banks in March, it has been found that 10 to 12 banks have funds to invest, while the rest are borrowing money to run daily activities.
In this context, the chief executive of a commercial bank has told Dhaka Tribune that the situation now is worse than the political instability which crippled the country back in 2014.
Bangladesh Bank data also say that in the end of 2014, private sector credit growth was more than ever.
In the past four years, the credit growth was not as low as it is now.
According to the central bank, the growth in the private sector credit growth has been steadily decreasing. Loan growth was 12.42% in March this year, compared to the same period last year. In February, the growth was 12.55%, which was 13.2% in January.
Former Bangladesh Governor Salehuddin Ahmed said: “The banks are now passing a bad time. Gradually, it is growing worse. A few years ago, the banking sector was relatively disciplined compared to other sectors of the country. But there have been many problems in this sector. Political interference, as well as absence of transparency and accountability, has put the bank sector under pressure.”
According to Bangladesh Bank data, deposits increased by 10.88% in the last one year, but loans increased by 12.98% during the same period.
Most banks are announcing additional interest schemes for the purpose of collecting deposits.
Almost all the banks have increased interest rates on deposits. Not only that, the banks which were not interested in depositing two years ago are now frantically urging for deposits.
Many depositors are willing to put their money in banks even if the interest rate is 10.5%.
Executive Director of Policy Research Institute (PRI) Ahsan H Mansur says the absence of good governance is crippling the banking sector. He remarks that things will improve if good governance returns in the sector.
It was found that several state-owned banks, such as Sonali Bank and Janata Bank, as well as Islami Bank Bangladesh Ltd, are disbursing fewer loans than ever before.
A senior official of a leading private bank, requesting anonymity, said his bank has not approved any project-related investments for a lengthy period of time now.
Bangladesh Bank statistics show that last year, banks’ SME loan declined by 7%. In 2017, the amount of distributed credit of commercial banks and non-financial financial institutions (NBFI) in the country’s SME sector was Tk2024.1 billion. In the year 2018, it stood at Tk1882.45 billion, which means that SME loan reduced by Tk1,416 crores in one year.
Association of Bankers, Bangladesh (ABB) Chairman and Managing Director of Dhaka Bank Ltd Syed Mahbubur Rahman says the liquidity crisis, which plagued the banking sector throughout 2018, is preventing loan disbursement this year. He blames this on non performing loans.