Liquidity management will be the main challenge for the banking sector this year amid pressure to implement the single digit interest rate and high borrowing from banks by the government.
The government is set to enforce the single-digit lending rate from April 1, 2020.
Only high managerial efficiency will let banks sustain in the extremely competitive market in the new year, said bankers.
Liquidity crisis, which eased after long effort of one year, is likely to intensify further in this year, said Md Arfan Ali, managing director of Bank Asia.
It is because banks will face a challenge to bring deposits at a low rate amid a pressure of keeping interest rate at single digit, he said.
When government borrowing is sky high, maintaining the single digit interest rate will be quite difficult for the banks, he added.
In the first five months of the current fiscal year, the government borrowed more than 85 percent of its whole year's borrowing target from the banking system, according to the central bank data.
Low revenue collection is making the government more dependent on banks, causing mounting pressure on the banking system, the managing director of Bank Asia said. This trend will deprive the private sector, Arfan added.
Private sector credit growth, as per the central bank data, has already come down to the single digit in November last year.
There is no sign of boosting private sector credit growth this year, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
Government borrowing already exceeded the bank borrowing ceiling set by the central bank, and if the trend continues, it will definitely be challenging to increase credit flow to the private sector, he said.
The implementation of the single digit interest rate will impact banks' profitability to a large extent, Mahbubur continued.
Because, the banks which do not have government deposits will face difficulties to manage the cost of lending at the single digit rate, he said.
Citing Mutual Trust Bank as an example, Mahbubur said the share of the government deposit in the bank is only 0.007 percent.
Even though the government's deposit for private banks increased to 50 percent, all banks are not benefiting from it. But all banks will have to implement the single digit interest rate, he added.
It can be noted that government deposits will reduce the fund management cost for the banks. Because, government organisations are compelled to park money with banks at six percent interest rate, following the government's instruction.
In April last year, the government allowed state agencies to deposit 50 percent of their funds to private banks to ease liquidity crisis in the banking system. The rate was 25 percent previously.
Liquidity will remain a challenge for the banking sector in 2020 due to the pressure of bringing down the interest rate to single digit, said Rahel Ahmed, managing director of Prime Bank.
Banks' profitability will come under pressure as well, and bankers will have to manage business efficiently to cope up with the challenges, said Ahmed. Ahmed is also the newly elected secretary general of Association of Bankers, Bangladesh for the session 2020-21.