The banking sector is perceived as the biggest risk to the economy of Bangladesh, followed by poor private credit growth, fiscal mismanagement and weak exports, according to a study titled Bangladesh Capital Market Sentiment Survey 2020.
The annual survey is conducted by LankaBangla Securities Ltd. Each year, the leading brokerage firm conducts the survey mainly to let its foreign clients learn about the sentiment of local participants.
Over 75 percent of the respondents believe crisis in the banking sector is the biggest risk to the economy.
Experts say governance is the key problem in the banking sector which has seen bad loans increase up to 12 percent of the total outstanding loans as of September 2019.
The International Monetary Fund debates that the bad loans are much higher in reality.
However, in the October-December period of the last year, the central bank allowed scheduled banks to reschedule non-performing loans of Tk50,000 crore and that reduced the official non-performing loan ratio to 9.32 percent.
Nonperforming loans, which go out from banks but do not come back into their books, are blamed for the deteriorating financial health of banks.
High rate of bad loans reduce banks' strength to lend money further and increase risks for shareholders.
Furthermore, the government's recent move to cap bank interest rates within 9 percent against loans and 6 percent for deposits has also increased fear of a liquidity imbalance in the banking industry and further slowdown of credit growth to private sector – especially for small and medium enterprises.
Besides, excessive flow of banking sector funds to the government sector and the government move to confiscate state entities' idle fund at banks is also being considered as elements of further deterioration.
From multiple choice questions, nearly 32 percent of 134 competent respondents mentioned that they are concerned about exceptionally poor growth in private sector credit and around 28 percent think weak exports and fiscal mismanagement will be a problem for the Bangladeshi economy.
To overcome the negative export growth, over 60 percent suggested diversifying the export basket, while only 18 percent opined to boost the readymade garments industry and 21 percent prescribed currency devaluation.
More than 58 percent of the respondents forecast that the Bangladeshi Taka will depreciate against US Dollar in 2020, while majority do not expect any significant change in the country's foreign currency reserve.
Furthermore, 73.5 percent of the respondents feel that inflation will further increase in 2020, while 53 percent feared that liquidity situation in the money market will deteriorate further and borrowing will be more costly.
Some 52 percent believe that single-digit interest will be implemented this year and 57.6 percent feared that private credit growth will not improve in 2020.
An alarming 87 percent people stressed improving food safety scenario, which is deeply associated with public health and national productivity.