The banking sector needs immediate focus and reforms to weed out all setbacks on the road to economic recovery amid the Covid-19 crisis, experts said at a dialogue on Wednesday.
Punishment against loan defaulters should be ensured and in order to save the sector, the penalty should be harsh, they said at the virtual dialogue titled "Corona Impact to Financial Sector – Sustainability and Capability to support for Economic Revival."
MMH & Co and The Lawyers and Jurists were the joint organisers of the event, while The Business Standard was its media partner.
Inam Ahmed, editor of The Business Standard; Dr Zahid Hussain, former lead economist of the World Bank Dhaka office; Rahel Ahmed, managing director and CEO of Prime Bank Ltd; Dr Salehuddin Ahmed, former governor of the Bangladesh Bank; and AM Masum, advocate of the Appellate Division of the Supreme Court, took part in the virtual dialogue.
In his introductory remarks, Inam Ahmed said, "The banking sector was going through a fragile condition because of defaulted loans earlier. Then the pressure rose again when the government capped the interest rate to a single digit.
"The stress has risen even further with Covid-19 as most of the businesses in the country have weakened during this pandemic."
Dr Zahid Hussain agreed with him, saying, "Our pre-existing condition was not good."
He stated that in the last four decades, our economy has gone through extensive reforms.
"The country has made a modern banking system over time. But some drawbacks have also evolved, such as the rise of default loans and forgery, which has become an addiction for few people," he added.
"The single-digit interest rate, without considering the amount and analysing the system, has also resulted in a setback for this sector."
Dr Zahid stressed that the banking sector has to be kept healthy to ensure a strong economy.
Rahel Ahmed said banks are always working for development by joining hands with the government, but all responsibilities have come on the shoulders of the banking sector and overburdened it.
Amid the pandemic, big business holders have taken loans from the government stimulus packages, depriving the SMEs. "However, it is now the banks' responsibility to assist them. But it needs credit guarantee as SME is a risky sector," said Rahel.
Dr Salehuddin Ahmed said greed made the banking sector vulnerable and it is recurring due to a lack of punishment.
There is also a regulatory failure, which comes from political influence, he added.
"This year's budget is disappointing as there is nothing for reforming the banking sector," said Dr Salehuddin, also the managing director of the Palli Karma-Sahayak Foundation (PKSF).
There were challenges for banks earlier and Covid-19 brings more, he said, adding that now the banking sector has to go through ups and downs.
About SMEs, he said, "To lift SMEs, banks have to come forward and take risks, more or less. SMEs are risky but small borrowers are good repayers; their recovery rate is 95 percent."
SME loans should be considered as non-routine loans without profit, he added.
Advocate AM Masum said that as per an amendment of the Bank Company Act, the government should make a list of the wilful defaulters and make it public.
"Before the Covid-19 outbreak, there were 23 percent stressed assets; if it becomes 40 percent after Covid-19, disaster will strike. So, the banking sector has to be focused on immediately."
He said borrowers' repayment period has increased from three to nine months, which might not yield a good result.
"Banks will again face a crisis if the borrowers file writ petitions with the court for staying their loan repayment. So, some section of the existing law should be suspended for a few days to fill the loophole."
AM Masum said around 40 lakh finance-related cases are pending in different courts.
"A bank commission has to be formed immediately," he suggested.
He also said it is important to think about whether the country needs 68 banks or not.
The dialogue was hosted by Mahamud Hosain, managing partner of MMH & Co, while Nazmus Sakib, law associate of The Lawyers and Jurists, managed it.