'The financial sector could be at risk of collapse'
The actual size of default loan is about Tk2,50,000 crore – more than double the government claimed figure
"Revenue, private sector credit, exports – all the indicators are down. Then what is the source of growth?" asked Policy Research Institute of Bangladesh Executive Director Dr Ahsan H Mansur.
If the deposit rate goes down further, the financial sector will be at risk of collapse, said Mansur.
The current 8 percentages plus economic growth cannot be sustainable if the financial sector crisis is not addressed immediately, he argued.
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Referring to the recent collapse of Farmers Bank and People's Leasing, Mansur said several commercial banks and non-bank financial institutions are now experiencing a serious deposit crisis and they could face the same fate as Farmers Bank and People's Leasing.
"Bangladesh Bank, policymakers and the government know the problems and solutions but they do not even 'recognise' the problems," Mansur pointed out yesterday at the Annual Banking Conference 2019 organised by the Bangladesh Institute of Bank Management (BIBM) in the capital.
The profitability of banks has gone down by more than one-third in the last 10 years, while deposit growth has dropped by 10 to 11 percent in the same period.
The capacity of banks has also shrunk significantly in recent times. Private sector credit growth has also sunk in the current fiscal year.
But it is the default loans which have more than doubled in the last 10 years. Mansur considers this development as a serious future concern for the economy of the country.
"The actual amount of default loans stands at around Tk2 lakh and 50 thousand crore, which is more than double the officially recognised figure," he claimed.
If things go on like this, the economy will suffer seriously as the export and private sector credit growth are slowing down.
Bangladesh University of Professionals' Associate Professor Jannatul Ferdous in her paper suggested to gear up venture capital to boost the growth of small and medium-sized enterprises and to facilitate the startup businesses which will fuel the country's economic growth.
However, on the first day of the conference, BIBM study showed that only 20 percent banks disbursed loans to the new businesses.
Bangladesh Bank Governor Fazle Kabir called the tendency of the banks negative for the country's economy and a barrier to becoming a developing country.
Limiting banks' credit either to sectors or corporate businesses is not a good practice, he said, explaining that the country would fall behind unless new sectors are explored for investments.
The BIBM Director Prashanta Kumar Banarjee said, if the government can properly run venture capital, it will reduce the burden of unemployment and diversify the country's export.
"When people do not get jobs, venture capital helps them do something. It will create new entrepreneurs in Bangladesh," Prashanta said.
The next industrial revolution may happen based on venture capital, Mansur said, while maintaining, "Our banks are not fit for it, the government should seriously start thinking about venture capital."
