In an exclusive interview with Dhaka Tribune’s Mehedi Hasan, Agrani Bank Chairman Dr Zaid Bakht talks about the country's ailing banking sector, ways to revive it and the upcoming national budget. Zaid Bakht previously served as the research director of Bangladesh Institute of Development Studies (BIDS)
What is the main problem of our country’s banking sector?
The high amount of default loans right now is the biggest problem in our banking sector.
A part of these loans were taken by different government institutions from the state commercial owned banks which were later written off due to the unwillingness and uncooperative nature of those institutions.
Most of the time, these government institutions cannot repay their debts because of monetary loss.
Every year, the government allocates funds from the budget to meet the capital shortfall of state-owned commercial banks which many criticisms. How do you see the matter?
State-owned commercial banks meet their capital shortfall from money people pay as taxes. But this should not happen.
In most cases, the government organizations become defaulters of state-owned banks. If we can recover the default loans from the government organizations, budget allocation will not be required to meet our capital shortfall.
The government can also allocate funds to the government institutions in the national budget which will help reduce default loans.
Four state-owned banks financed the construction of Mayor Hanif Flyover. However, we are facing difficulty to get back the instalments of the loans due to various reasons.
What is your suggestion to make the banking sector stable again?
The private sector investment is not as high as it used to be. In this case, the credit flow should be continued. The traders should be given some breathing space to repay the loans.
On the other hand, government should take action against willful defaulters.
Those businessmen, who are defaulters for actual reasons, should be given some kind of guidance and opportunity in the budget.
The main problem regarding default loans is that the defaulters are not paying their loans year after year by filing writ in court which should be immediately stopped.
We have repeatedly said this. The judiciary is very vocal about it too. For this, there is a need to make a separate bench in the High Court which will only look into loan related cases.
There may be guidelines in the budget regarding forming an asset management company to recover default loans.
Should there be incentives for the financial sector in the budget?
The government will give a massive budget, where the revenue collection target is very high.
A strong position in the financial sector is very important. There should be incentives of some kind allocated in the budget for the financial sector.
How can the banking sector overcome its current liquidity crisis?
There is not a lot of cash crisis in the banking sector. But the banks are unable to provide loans for some other reasons
Still now, the AD Ratio (advance to deposit ratio) of about 11 banks is above the limit.
In this case, private banks will be brought under discipline.
There is a crisis of dollar as import payment is much more expensive than remittance and export earnings..
To stabilize the foreign exchange market, Bangladesh Bank has continued to sell dollars to banks. Since export earnings are not growing as compared to imports, the taka must be devalued against the US dollar.
Why the private banks failed to bring down the lending rate?
State-owned commercial banks have brought down lending rates to single digit.
However, private commercial banks were unable to bring down the lending rate to single digit.
One reason for this is that they have to collect deposits at a higher interest rate.
That is why they cannot lend with single digit interest rate. In a market economy, interest rate cannot be fixed.