Banks under tremendous pressure

Bankers gave their views on the impact of the pandemic on the country's banking sector, the additional pressure on banks to disburse the stimulus loans and the central bank's steps including the interest rate cap at an online discussion hosted by The Business Standard. Moderated by Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office, the webinar was joined by Brac Bank Managing Director Selim RF Hussain, Trust Bank Managing Director Faruq Mainuddin Ahmed, and Prime Bank Managing Director Rahel Ahmed, who is also the secretary general of the Association of Bankers, Bangladesh. The Business Standard Executive Editor Sharier Khan initiated the discussion on July 4, and senior reporter Jebun Nesa Alo also participated in it.

Here are the excerpts of the online discussion.

Sharier Khan: This webinar of The Business Standard will focus on three issues: stimulus implementation, lending rate, and bank borrowing in the budget. Another issue is the banks' expectations over the government's monetary policy.

I request Zahid bhai to moderate the programme. Today all our guests are bankers. Zahid Hussain is an economist. Others are Selim RF Hussain, Managing Director of Brac Bank, Faruq Mainuddin Ahmed, Managing Director of Trust Bank, and Rahel Ahmed, General Secretary of Association of Bankers, Bangladesh and Managing Director of Prime Bank. Our reporter Zebunnesa Alo is also with us.

Zahid Hussain: Thank you Sharier. Also, thanks to The Business Standard for arranging the programme. Our guests today are all leading figures in the banking sector. All are familiar faces.

Sharier told about three specific issues. Now I will present a general introduction. I want to divide the discussion into three parts.

The first thing is what the condition of the banking sector is amid the Covid-19 pandemic. Like all the other sectors, the banking sector has also been impacted by the crisis. And to face the crisis the banking sector is given a big responsibility. But is the sector having the necessary policy framework to do that responsibility? And at last, as Sharier said, we will discuss the monetary policy and your expectations about that. Or, what should be the nature of the monetary policy amid the present situation of Bangladesh? We will like to know your key points from the perspective of the banking sector.

So, we will begin with the present condition of the banking sector. We have seen the financial stability report of the Bangladesh Bank where there is an analysis based on the data of 2019. It said though in some areas there are some weaknesses, overall, the banking sector is resilient.

But we economists observed that the banking system, even before Covid-19, was very much stressed. There was pressure on both sides of the balance sheet – asset side and the liability side. There was also a pressure looming from the sides of income and expenditure. It has increased after the pandemic broke out.

That is why we would like to know the present situation of the banking sector, about the asset side, liquidity, quality of assets, deposits on the liability side, interest income etc. There are also some new costs amid the Covid-19 crisis – maintaining social distancing, sanitisation, wearing masks, working from home. There must be some impacts on the employees' productivity. I will start alphabetically with Faruq Mainuddin Ahmed.

Faruq Mainuddin Ahmed: Thanks to everybody. I also thank The Business Standard for arranging this discussion.

The issues that have been raised concerning the banking sector are nothing new. The situation has not been good for the last several years. The biggest weakness of the banking sector has been the NPL (non-performing loans). We are still not free from this burden. And the most recent problem that has added to that is the impact of 9-6 percent interest rate.

From the moment we were capped in April, and for that month, all the banks were in loss, because we could not get a single penny as interest but we had to pay interest to everyone. As a result, we saw that the magnitude of loss for the banks for not taking any interest from the borrowers.

Anyway, later there was a solution given: the government will bear a portion of that interest and the borrowers will bear another portion. The borrowers will keep bearing it in the next year, too. And here is our concern. The issue of 9-6 percent was from 2019 when there was no forecast of Covid-19. Now what will happen after post-Covid-19 situation?

You said the businessmen could not bear more than 9 percent; now they will say after corona that we have conceded huge losses, and we cannot bear 9 percent interest – 9 percent is too much for us. What will happen then? We are not thinking about this but we need to think.

Then came Covid-19, and we have some extra expenditures for this. We gave stimulus to the officials who performed duty amid the nationwide shutdown. And for that we had to expend around Tk5 crore every month.

Now the problem is: What is going to happen next, after December 2020? We have no idea as bankers or economists. We are heading towards a very uncertain future. Many are saying the situation will be worse than the great depression of the 1930s. And now the way the situation is going it will be very hard to restore the damage that Covid-19 is causing.

Zahid Hussain: Is there any liquidity crisis? Because of the changing behaviour of the customers what kind of changes are you observing on your balance sheet and profit and loss?

Rahel Ahmed: I will begin with your first question about the present situation of the banking sector.

To express it in a single word: the banking sector is tired or fatigued. And it is not only because of Covid-19, it started much earlier.

We all know that the main reason is the non-performing loans. The second issue is that towards the month of February a strange factor hit us, and you know we have a strong relation with the business sector of the country, specially the RMG sector. And when China was infected with the virus it impacted not only RMG but several other sectors' supply side.

Then we saw that the virus started to spread to North America and Europe. And it started to put a negative impact on these sectors. And the crisis deepened towards the month of March. We entered in a lockdown situation when the virus started to spread in our country.

In the first month of the situation till April we tried to understand the situation. Because it was a completely new situation for us. We conceded losses in this period because there were no businesses, no new loans were provided, not in corporate or SME – everything was in a standstill. It was like a breathless situation.

Then some businesses started to open on a limited scale. Some stimulus packages were declared by the government. The banking sector provided a good support to disburse Tk5,000 crore stimulus package for the export industries. And from April a new measure of 9 percent lending cap was imposed that Faruq bhai talked about.

We have been preparing for that lending cap for months because we were expecting it to come and there were a lot of discussions on this. We thought what if it was applied gradually from manufacturing entity or large corporate or the sectors that are involved directly with industrial productions etc. But in February Bangladesh Bank gave the directive for 9 percent lending cap for all including SMEs.

We were being prepared for that because we needed some operational efficiency. The opposite side of the balance sheet – the liability side – we tried to decrease the cost of deposit by decreasing deposit rate.

At the beginning we discussed with the policymakers and they assured us that the government deposit will be distributed as per the paid-up capital of different banks, which will be a source of our cheaper deposit. But that did not happen. The banking sector which was already fatigued was burdened with two months' interest block. We did that to help industrial production and the businessmen.

Then came the implementation of the stimulus package. And from the liquidity side the central bank helped us a lot. We thank them for all the support that they have given. But we have to take credit risk 100 percent with liquidity. The fatigue that the banking sector has been experiencing is directly related with the credit risk environment of the country.

When we consider Tk20,000 crore – I think Selim bhai will elaborate this issue because he is a specialist on that area – you economists always say that the domestic economy must be running, everybody should have money in their hand, etc. Now how can we give loan to a devastated SME in this Covid-19 situation without any credit risk sharing? For that we have to take 100 percent risks on the shoulder of the banks. And it is not that the situation of this sector has been good.

I think it is a big problem which should be discussed. We have been discussing on a draft policy with the central bank. The policy should be realistic because if it is not realistic it will not be implemented fully. And neither the banks nor the SME sector or the overall economy of the country will be benefited. The Tk30,000 crore stimulus that has been given for the large sectors, we already have started to disburse that from our banks, and we have already disbursed around 50 percent of our allocation and the rest will be disbursed within a week or ten days.

And also, here the total credit risk is on our shoulder. Now we do not know how long the pandemic will sustain in this country. If we were a country like Thailand or Vietnam, we would have a better view of the future. Unfortunately, we are in Bangladesh where the health sector is very weak and we also have to think about the total ecosystem of the society and the ecosystem of business.

We see that many low-income people are leaving the city. So, when we will think about the business verticals separately, when we will think about the future of the retail banking – we observed in the last three months in our credit card business that only the business of chal-dal has increased in e-commerce. But earlier, people used to go coffee shops, restaurants – that extra expenditures have decreased.

In retail lending we see that buying of television, fridge or some new lifestyle enhancement products has also decreased. Many people have lost their jobs, income decreased, business shrunk. So, what is the future of retail? We have no visibility for that. And to asses that we have to calculate the duration of the pandemic.

We were told that we will reach the peak in June, now we are telling that it will be in July. The SME sector has been hit hard. In India it is assessed that around 35 percent of the SMEs are not going to come back for business. We still have no idea of the situation of the Bangladeshi SMEs.

The big corporations also have some dependency on this SME, retail or consumer spending. And in the export side our RMG sector has observed a shrink in the demand side because overseas market is decreasing. We have been observing many cases of bankruptcy, many global brands or businesses etc.

The situation may seem very negative but there are some positive sides, too. The agriculture sector is doing very well. We are having bumper crops. But in the present situation, we are lacking a total understanding of the situation because of a lack of visibility. So, we need proper visibility for a total projection of the banking sector. I think we will project better after some days.

Zahid Hussain: Thank you Rahel. Now I will go to Selim bhai. You gave a detail interview to The Business Standard several days ago where you discussed all the issues of the banking sector. The banks implemented the first stimulus package of Tk5,000 crore with a 2 percent service charge. Did this service charge cover your transaction cost? Or was it an extra burden for you?

I have a specific question for you. Now the liquidity support that has been given for the stimulus packages which you will get for 4 percent interest rate, refinancing facility, and you have to do a lot of documentation – collecting customers' applications, doing agreement with the central bank etc – where you have to spend money and time. So, you are taking money at 4 percent rate, plus such a high transaction cost, plus a 9 percent ceiling and you will get some money from the government and some money from the borrowers. Counting everything have the stimulus packages become a burden for the banking sector? Or, is it manageable?

Selim Hussain: Here the return on asset is very minimal from the perspective of the revenue. Actually, this is not a grant. The central bank is providing liquidity as loan and the banks should give loans to the customers. It is the banks' responsibility to recover the loan fully and pay back to the central bank.

In any transaction one looks at the liquidity cost, risk premium and operational cost. Bangladesh has provided liquidity very well in terms of refinancing, in terms of repo etc. So, that has been more than welcome and there is more than enough liquidity in the market for most banks. The challenge is that the transactional costs are not there, 2 percent over a two-year period plus the risk premium is an enormous burden on the banking sector. But the banking sector has more or less successfully taken it on board and is now rolling it out. Specially, the Tk5,000 crore stimulus package for the RMG workers' salary which has been done for April and May and for June it will be rolled out soon.

But there are 17 to 18 more packages of more than Tk90,000 crore. The challenges are different for different packages. But the first package has been rolled out.

But as Rahel and Faruq bhai said that the banking sector was under pressure for several years, you know that everybody loves bashing banks but the fact is that without the banking sector no economy in the world can survive. Banking sector is the life blood, the heart of the entire economy. If the banking sector is not alright, if it is not vibrant and strong, if it is not efficient enough, it will impact every part of the economy.

So, the challenge for the banking sector is enormous. It is an extraordinary achievement for our government to launch stimulus package of around $13-14 billion. The total amount will be disbursed via the banking sector. The responsibility of rolling it out, ensuring repayment and everything is on the banking sector for the next three years.

Today everyone is shouting why banks are not providing money and if tomorrow the money is not back, they will shout why the money is not back. Then nobody comes to help the banks. The risk premium is not built in any of the packages at all. It is entirely on the banking sector. For the last three months – March, April, May – and even in June 50 percent of the most banks were open and at least 30-40 percent of our officials were in the trench to fight the virus supporting the clients. Many of our colleagues were infected and many have died.

So, there was psychological stress also. Every bank tried to face the situation differently. We, Brac Bank, tried to redesign our business continuity planning back in March. Very early on we were able to be completely operational. And our technological capability was upgraded for remote working. Today our head office has 300 officials instead of overall 1,400. But the bank is fully operational. Around 1,500 colleagues just for the head office are working remotely.

We think we do not need to go back to the office again because we have found new ways of working. A different way of working. And we are far more productive. We asked how we responded to this challenge. We could be negative, we could have been scared but we chose to be very aggressive to come forward to deal with our customers.

From day one we gave three months to six months loan moratorium to all client segments: credit card, retail loan, SME loan, commercial loan, corporate loan. And 48 percent of the clients of Brac Bank have availed these services.

You said about liquidity. In June, only there was Tk2,000 deposit growth in Brac Bank. Many organisations in the industry are facing trouble and many are doing good. So, it varies because the industry is very fragmented. There are small fourth-fifth generation banks and there are big banks – government banks, four-five private sector banks. So, you cannot broadly say that every bank is in the same scale. But every bank is fatigued and psychologically fatigued as anything else.

Zahid Hussain: Thank you Selim bhai. I have a specific question for you, it may be unpleasant: the bank owners association provided a 13-point recommendation and the point that was most highlighted in the media was about job termination of the employees and reducing their salaries.

Faruq Mainuddin: The matter is a bit unpleasant, yes. But the 13-point recommendation was not pursued later as far as I am concerned. I personally did not see anything like that. I heard later that it was typed as a letter but unsigned. I do not know whether my colleagues got it or not. If not then it is not in effect or probably they thought that it should not be pursued. Probably they realised that they do not have the rights to recommend some of the points.

The second thing is that we who are on the managerial side always talk about cost control measures. But salary cut or job termination is an extreme policy and it could be taken only when a bank is in loss. I do not know what others will say about it.

Selim bhai said there are too many banks. The matter is when the government declared about the stimulus package everyone thought it should not be paid back. They were very delighted. This is the mind set of people. Everybody wants grants. Many of my friends who are not in this profession, mostly writers, told me that our banks cut too much as charges here which is unusual for the outside world. I replied that someone must bear the charges and there are many occasions where we do not charge any money and you people remain silent about that.

I will say that in our country bankers have to trace fake notes in the animal markets of Eid-ul-Adha and also to oversee the cases of tax evasion of our people who are living in America. Very recently there was a directive that our officers have to monitor VAT collection, too. If we bankers have to perform this duty, why are the VAT officials taking their salaries?

So, many things are coming on the shoulders of the bankers. And it is fortunate that they understood the absurdity of the 13-point proposal and it was withdrawn for the time being. We are the life blood of the economy. We pushed our employees in front of death during the Covid-19 pandemic. Despite this the authority did not include bankers as the essential service providers. This is a thankless job.

Zahid bhai, I have something to say about the stimulus package. When the government declared that we will provide a certain amount of money it was the right thing because we have to give money to businessmen to run their businesses. But they have created pressure on banks to disburse the money. All the responsibilities of giving the loans, doing all the verification process and recovering the money are on us. And in this process, we are not having much opportunity to verify the big borrowers.

Recently Daily Samakal has published a news that banks are busier to cater to the need of the big guns than the SMEs. The small do not have a bargaining power, they do not have the repo. I am not against big borrowers but my fear is that am I depriving the small entrepreneurs. There is another issue here. I think, probably Selim bhai will agree with me as he is in an SME-based bank, that a big company has many avenues to generate income to run all their fronts and all their enterprises. But an SME has only one organisation. So, I think they should be prioritised.

Another thing I tried to say many times is big business conglomerates have got multiple banking facilities from all the banks. So, they are getting stimulus packages from all their bankers. I think we should monitor whether taking stimulus from many banks by the big enterprises is over lending or not. If I talk about this, they will say it is not your duty because the central bank and the government approved this. I don't know how to resolve this.

I also want to say about retail: you are an economist, you will understand better; of course to industrialise the country the bank credit cost is a big factor, but we never imagine that it will be applicable for retail because it is not a productive sector. So, we needed to give more stimulus packages to the productive sectors and provide them 9 percent interest rate, then we could go forward assessing its effects and consequences. Those who take any purpose loan do not need the money. They take the loan because the banks are willing to give them money. We all the bankers were talking about this but it was not paid any heed.

Zahid Hussain: Rahel, I want to come back to you again.

I want to ask you a specific question. That is some policy regulatory forbearances have been increased and being extended. And there are no deep radical answers about when the economic crisis will end. As a result, there will be demand to extend the forbearance in the coming days – I have no doubt about it. But it will put a huge pressure on the banking sector. And the responsibility to face the crisis is upon the banking sector. Though we are saying that it is being done by the government, the involvement of government money is very low here. Fiscal cost of the stimulus package is less than 1 percent of the GDP where the total cost is nearly around 4 percent of the GDP. It will be done by the money of the bank depositors, their capital and if the regulatory forbearance is increased and you cannot do loan classification, what will happen?

Rahel Ahmed: The whole thing is a continuation. Unfortunately, the banking sector has been running through a fatigue. Now the regulatory monitoring or the change of classification rules, the 90 days rules that were done around a year ago – was that right? It was an opportunity given to the dishonest people that you can pay the money back later.

Now, in this corona crisis, there is genuine reason. And in that situation, we the banking industry have to work together to face the crisis. But the banking industry had been put into trouble by some regulations. Now the dishonest people will take their chances again. If it was based on banker-customer relations that we can find in almost all the directives, and those who are good clients and think that I have cash flow right now and I will pay back, they can pay back. But the dishonest clients who have assets in Malaysia or Canada or have alternative cash flow in Bangladesh will take the chance of this forbearance and will say that I will not pay now. And I have no way to pressure him to do that. I have no regulation as a banker to tell them that I will not give them that advantage.

Now the good customer will say that I am giving the money back but the dishonest businessman is taking advantage. And the 9 percent lending interest cap has brought everyone to the same level. Now there is no classification. A large corporation is giving 9 percent and a retail customer who is taking a lifestyle loan of Tk5 lakh is also giving 9 percent.

I think the policymakers should draw their attention to these issues. Regulatory forbearance was necessary there is no doubt about it. In a situation like this, the central banks in other countries also take steps and impose regulatory forbearance.

Unfortunately, this action in our country has become dishonest customer-friendly because of our past history. So, we have many burdens on our shoulder and regulatory forbearance is just one of them. Now if we cannot take right actions, then in near future when the time limit of the forbearance will be over the situation will be much worse than what we are seeing right now.

I think we should differentiate between good and dishonest customers and provide different advantages for them according to their characteristics.

Zahid Hussain: Selim bhai, what Rahel said was very diplomatic because he represents the association. Here in our country, frankly speaking, an evil friendly governance is going on. The intention of the regulatory forbearance is good but there have been misuse of this intention. The big fishes will take their chance. What kind of reforms do you want here? Our finance minister promised to reform the banking law; I have even seen a draft. Nobody gives any attention to that after corona. Can you specify some measures that are needed to solve this crisis?

Selim Hussain: I have told earlier that the banking sector should remain strong and vibrant. When you impose artificial pricing in a free market economy – whether in the banking sector or in the capital market – there will be negative implications. We all know that. Now the impacts of actions like 9 percent interest cap have been shown by independent organisations like the IMF, the World Bank or other academic researches.

A few years ago, a similar situation happened in Kenya and the parliament had to roll back from their decision. In this particular moment the 9 percent lending cap will give short-term benefits for the corporate and commercial clients but certainly not in the medium term. Because in the medium term what will happen is private sector credits will start shrinking. That will happen at the end of this year. Because there is no risk premium and there is no recovery or operational costs.

The banking sector is like an orphan house in Bangladesh. All the regulations and rates are set by the authorities and now they will tell you to provide loans.

What will happen in the medium term, our economy and our businesses will be impacted and the banks will shy away from lending money. As far as the retail and the SME sectors are concerned, they will die of in less than one year because it is impossible to lend successfully on a commercial basis to the retail clients amounts like Tk2-5 lakh or to the SME clients amounts like Tk7-8 lakh at 9 percent interest rate and recover all your cost of operation…it is impossible.

Those who think that retail is completely unproductive – if I do not provide loans, how will people buy fridge from Walton? On the one hand, I am giving loan to Walton to produce fridge but if I do not provide loan to the customer then who will buy the fridge? If you look at the USA, 85 percent of their economy is based on domestic consumption on retail.

To consider retail as an unimportant segment in today's world in a developing economy like Bangladesh is a complete catastrophe. What Rahel said that you want me to provide loans to Square Pharmaceuticals at 8-9 percent and a Tk2 lakh credit card loan at the same rate. Now come to the cottage, micro and small businesses. Every week I have to go to their shops to collect the instalment. I have to visit him five to six times for that.

The transactional cost is around 85 percent of the income ratio and now that has become 140 percent income ratio. Around 48 percent of our loans in Brac Bank are SME. It is a complete loss business.

A week ago, we have informed the governor, the DG and other senior officials about this on behalf of the ABB. They said we will try to bring some relaxation concerning cottage, retail, micro and small. And if the 9 percent cap is continued for a lengthy period, it will do much harm.

Now come to forbearance again. In this time of corona forbearance is well articulated and the IFRS also agreed on this. The IFRS prescribed that in this time of Covid-19 you must find different ways of doing loan impairment. You must find different ways of doing it. Now the central bank has given us the opportunity of three to six months extension right up to September. This may be extended. And I hope this will happen on banker-customer relationship basis. I hope that the CIB will be allowed to start operating by that time to.

I think this is a rare situation as a pandemic like this comes once in a hundred years and at the end of the year any financial institution should seriously consider making a large general provision using existing mechanics to determine what a bad debt is and what is not – this may not be the right way to go about it. For example, for Brac Bank, our board has discussed a lot about it. And our kind of board will come up with a large provision at the end of the year. And all international analysts and credit rating agencies would welcome that kind of support. But for us to think at the end of the year, since there have been no bad debts according to our central bank's rules, so we don't have to provide any loan, so my book is fine!

The actual situation will come out in 2021-22. And the banking sector of Bangladesh should be ready for that.

Zahid Hussain: Now we will talk about monetary policy.

I don't think there is much flexibility about the monetary policy. On the one hand, the government has given a big target for taking loans, more than Tk84,000 crore. And at the end of the year the amount will increase more. Will it be an opportunity for the banking sector where you could do risk free investment on government bond, bills? On two years' bond they are giving around 8 percent interest.

So, what are your expectations on the monetary policy?

Faruq Mainuddin: I think economists will be better to deal with the monetary policy. But as a banker I think where the interest rate is fixed, monetary policy does not have much to do. It becomes formalities only.

Another point I want to add to Selim bhai's is about retail. On this point I am fully agreed with him. If there is no retail, the large businesses will not survive because their market depends on retail. But if they ask me to give the retail a loan at 9 percent rate, I will not give it and here the retail will be the sufferer.

In this situation when the interest rate is fixed, I will be more inclined to keeping the money in government treasury bond where I will have some income. It will be more comfortable for me to keep money there.

Jebun Nesa Alo: I have a question for Faruq bhai. I want to know the current situation. How much consumer loan have you provided in the last three months? What is the situation of home loan and consumer loan?

Faruq Mainuddin: If I compare it with the previous time, I would say it is off now. If I provide only five to ten loans, I would rather say that it is not functioning. It is virtually off.

Rahel Ahmed: I agree here with Faruq bhai that in a capped interest rate regime monetary policy will be just a decorum to maintain. What I am saying on behalf of the banking industry is that as we have tremendous pressure on us, we will not be interested right now to do much on these areas. Naturally, we have risk-free elements in investing treasury bills and bonds. I think all banks will try to go to that sector. We will wait to see how using the monetary policy they try to reinforce the internal economic elements.

Zahid Hussain: Selim bhai, what is your opinion on this? Will there be any impact of supply on debit-credit flow? Will there be any pressure on liquidity?

Selim Hussain: They have provided us with enough liquidity. The central bank is pursuing an expansion-based monetary policy which is very, very right. The CRR has also been reduced to 4 which was 5.5. The repo rate has also been reduced. The central bank is helping as much as possible. And they have pumped in enough liquidity.

As far as the budget is concerned – you economists know it better than us – what I can say is that the revenue target is quite illusory. It will not be achieved.

We think the government should borrow because of the pandemic. I think our GDP to debt ratio is below 40 right now. It is not that higher for a developing country like us. So, we have a scope for the government to borrow.

I think money should be pumped in the economy – domestic consumption must be increased. People must have money in their hand which they can spend whether in restaurants, by buying electronics or whatever. They must spend.

Sometimes we over-focus on export but our domestic economy is quite large now. Bangladesh is not what it was 15-20 years ago. There are large conglomerates in our country to serve the domestic market. We always look to the RMG that they will export but there are many large sectors outside that. For example, the white goods sector, the real estate sector etc. So, the domestic economy should be made more vibrant.

I must come back to the 9 percent rate cap and how this will negatively impact the entire economy. Not in many countries in the world you will find an interest rate cap. The concept of bringing down interest rate is very good. But that should be done through your free market dynamics, through your bank rate, reference rate, liquidity and other tools but not through artificial pricing.

When this policy has failed in so many countries around the world in the past 30-40 years why is it introduced in Bangladesh?

So, my request to the authorities is to exempt the cottage, micro, small and retail sectors from this cap. And this should not be applicable for the corporate or other big enterprises after one or one and a half years. The reforms that we need in our banking sector must be introduced, otherwise we will head towards a big disaster.

Around a month ago, the ABB chairman was asked what the biggest challenge of our banking sector is. He answered: good governance. NPL is the biggest challenge and it is the outcome of the lack of good governance. And our inability to bring money back from defaulters because of the regulatory and legal framework related vulnerabilities. This is really impacting the banking sector very badly.

Faruq Mainuddin: I want to add a point here. Selim bhai made an interesting point that is we only focus on the export market. If we look back at our domestic market where there are 16-17 crore people that will automatically boost our GDP.

Jebun Nesa Alo: Selim bhai said it is important for us to boost the domestic consumption right now. At the same time, we have capped the interest rate. How can it be balanced through the monetary policy? What can Bangladesh Bank do to balance these two factors? How can money be reached to people's hand?

Selim Hussain: Banks will concede loss.

Jebun Nesa Alo: In that case what role can Bangladesh Bank play on monetary policy? What can be the way out for that?

Selim Hussain: I think there must be some concession for retail and SME on the interest cap. If this exemption or relaxation are not made, those cottage, micro, small and medium businesses will not open. And that will impact everything else.

Zahid Hussain: Jebun Nesa Alo, I want to add a point with him that at the beginning of our discussion Faruq bhai said that we cannot forget that the constraint is two sided in this pandemic: one is the demand side where unemployment has increased, income reduced and on the supply side there is also a constraint. So, what Selim bhai is trying to say is very important that is, you can do monetary expansion which is appropriate in the present situation but how effective it will be will depends on where the expansion is going. Now if the small and cottage industries start to starve for this interest cap and face an existential crisis, then the expansion will not increase production. Then if the demand increases, it could create macro-economic risks like inflationary risk or foreign exchange market instability.

Now I am concluding our discussion. Everyone agreed that deeper problems must be addressed like the problem in governance in NPL. If money doesn't come back after giving loans on a regular basis, then whatever you do, this sector will not survive. What we can expect immediately, probably we will get some guidelines on how we can increase the flexibility for this fixed interest rate of 9 percent for all. I hope Bangladesh Bank will give some indications about it. If you have anything more to say you can add, please.

Selim Hussain: If you consider the banking sector as an orphanage, it cannot be a non-profit organisation. It has to be commercially viable profitable organisation. It is a publicly listed entity. It must generate appropriate return on asset, return on equity. But if you hit the banks with an axe, it will impact every sector of the economy.

Why is not this simple truth understood? The private banking sector has a good contribution to the economic growth of the country. Forty years ago, there were only government banks in our country. If we have only government banks today, what would be our condition?

Zahid Hussain: Do no harm. If you cannot do any good for me, do not do any harm. We have achieved so much through a flexible interest rate. Now what problem do we want to fix by setting this 9 percent interest rate?

Rahel Ahmed: In 2016-17, private commercial banks lent at 7-8 percent interest rate to the large corporates. It was not imposed by anybody. We have come to 9 percent from 12-13 percent or in some cases 11 percent. If you look at the balance sheet of a large corporate, you see that the difference of 200 dips and its impact on its cost and if you compare it with the system loss that the company faces while transporting goods for the supply chain infrastructure, logistical limitations to Chattogram from Dhaka for export, I don't think the reduction of 2 percent interest rate provides that much benefit for the company.

Our focus should be to renovate the Chattogram highway, increase lanes, to try to transport goods via electronic rail, or to reduce congestion at the port. I need to encourage my business people by giving these things. But if we put all the pressure on the banks then the golden goose will be killed. Then who will supply the money?

And the depositors own around 87 percent of the money of the banks which is more than the sponsors. Now we have forgotten the depositors and we are focusing our policies on the lenders. If we do not focus on these issues nothing will change.

Faruq Mainuddin: Today we are talking about fixed interest regime but the banks provided interest rate lower than this without any instruction several years ago. It was the market that was the driving force behind that. Today's industrialisation of Bangladesh, the businesses – everything was achieved during the age of free interest regime.

Another point: we have provided long-term loans that were not supposed to be provided by us. Those who were designated for this – the Shilpa Bank, Shilpa Rin Sangstha – have failed miserably. If interest was not a factor in that period, why is it now? We have to inquire who were behind this demand – all the businessmen or some very few?

Sharier Khan: The whole discussion sheds light on issues from the banks' point of view, makes it clear how difficult the situation is for the banks now. It would not have been possible for me to grab the whole reality if I was not present here. The discussion was very enlightening for me.

So, I thank all of you on behalf of The Business Standard for joining us here. And we hope that in future we will sit in this sort of dialogue again.

We will publish the problems of the banking sector on our newspaper on a regular basis to initiate opinions and actions regarding this. Thank you!