It is difficult to go for mergers and acquisitions in the banking sector, given the country's financial system. Strong banks will be unwilling to merge with weaker ones. So, the number of banks can be reduced a bit, Dr Mashiur Rahman, economic affairs adviser to the Prime Minister said on Sunday.
More emphasis should be laid on enhancing the efficiency of banks. If a bank fails to select its customers, problems relating to default loans will not be lessened. Therefore, all, including the central bank and the government, should help banks in choosing good clients, he said at a webinar on how much the economy reflects on excess liquidity of banks.
The Lawyers & Jurists Foundation and The Business Standard jointly organised the discussion, moderated by Mohamud Hossain.
Noting that it is difficult to define intentional defaulters, he said the number of default loans will be reduced if banks lend selectively.
Mashiur Rahman suggested that the Bangladesh Bank and people engaged with banks make an assessment of potential economic sectors and the sectors that have got loans more than necessary.
Syed Mahbubur Rahman, managing director of the Mutual Trust Bank, at the discussion said default loans are increasing because of an unhealthy competition among banks.
It is possible to bring more people under financial services by increasing the number of sub-branches or agent banking points of banks without increasing the number of banks, he added.
Barrister AM Masum said default loans are on the rise owing to interference of the board of directors in the management of a bank, changing the definition of default loans, keeping four members of the same family as directors, and one director staying on the bank's board for nine consecutive years.
Regarding excess liquidity in the banking system, Ahsan H Mansur, executive director of the Policy Research Institute, said the government has taken timely steps for the economic recovery from Covid-induced losses. The reduction in bank rates, statutory liquidity ratio of banks, increase in the loan-to-deposit ratio, incentive packages and other measures have not created any shortage of funds at this pandemic time.
On the other hand, the central bank has purchased dollars equivalent to Tk90,000 crore from the market to reduce the appreciation of taka against the dollar with remittance inflows, having gone up more than ever before. This money has also played a role in creating excess liquidity in the market.
But Ahsan Mansur thinks, "The flow of money in the market has become more than the demand as private sector investment has not increased due to uncertainty created by Covid-19. We need to think about whether liquidity can be reduced."
Syed Mahbubur Rahman, managing director of the Mutual Trust Bank, said the private sector is not getting the courage to increase investment amid uncertainty over the pandemic.
However, the prime minister's economic adviser hopes that this uncertainty will not last long.
"We have started countrywide vaccination against Covid-19. Covid will soon be in control and the economy will return to normal as well," he added.
As investment in the private sector is not increasing, Mashiur Rahman has advised the government to increase investment to sustain economic growth.
Regarding default loans, he said these loans were not so visible with the moratorium facilities available throughout 2020. Again, the banks were allowed to keep lower amounts in provisioning. The adviser also thinks that the flow of money has increased because of such facilities too.
To implement the stimulus package declared for small and medium enterprises (SME), he urged the central bank to take initiative to help the banks tackle risks that they do not want to take by giving loans to the sector.
Mentioning that the implementation of the stimulus package for the SME sector is going slow as the central bank is taking time to change its policy, Mahbubur Rahman said the package will be fully implemented by next March.
Regarding private sector credit growth, the banker said the credit growth target set at 14.5% in December will not be implemented. However, he thinks that the situation may change after next June.