POST TIME: 4 November, 2019 00:00 00 AM
CPD suggests urgent reform of banking sector

CPD suggests urgent reform of banking sector

Debapriya Bhattacharya, distinguished fellow of Center for Policy Dialogue (CPD), speaks at a press briefing on the situation of country’s economy in the first quarter of FY 2019-20 in the capital yesterday. INDEPENDENT PHOTO

The Centre for Policy Dialogue (CPD) yesterday said an overall reform of the banking sector was urgently needed to extricate it from its current perilous state.

The private think-tank made this observation at a press briefing on the current situation of the economy in the first quarter of FY2019–20. It was organised at the CIRDAP auditorium in the capital.

Speaking on the occasion, CPD executive director Dr Fahmida Khatun said there were no visible steps taken by the government to get the country’s banks out of their current difficulties.

In recent times, she said, the number of private loans had dropped, liquidity crisis had deepened, and a cap on the deposit and lending rates had not produced the desired results.

She also said the amount of default was increasing alarmingly along with an increasing tendency to write off loans and loan scheduling.

Citing research done by the think-tank, Fahmida Khatun said there were “serious capital inadequacies” in the banks.

Bangladesh Bank’s guideline on a risk-based capital inadequacy states that banks must maintain a minimum total capital ratio of 10 per cent. However, most commercial banks, she pointed out, had failed to maintain the minimum requirements of capital inadequacy.

Fahmida Khatun said capital inadequacy would not improve unless non-performing loans were reduced, resulting in a capital shortfall.

She also said rescuing banks through recapitalisation had been futile. “Recurrent recapitalisation of state-owned banks by the government has emerged as an issue of grave concern, as the performance of the banks is not improving,” she noted.

The CPD said it was estimated that the government had spent Tk. 15,705 crore in recapitalising the banks during the FY 2009-2017 period. “This amount would be sufficient for building four deep sea ports like Payra,” Fahmida Khatun said.

She also said the government had come forward to rescue the Farmers Bank Limited (now Padma Bank) with a package of Tk. 1,100 crore.

“This has set a bad example and will encourage banks involved in irregularities,” she added. “These problems suggest that an overall reform of the banking sector is urgently needed,” she noted.

Towfiqul Islam Khan, a senior research fellow at the CPD, said revenue mobilisation in Bangladesh had not been commensurate with its rapid economic growth.

“Income tax evasion is high in Bangladesh—thus undermines income equality and development finance,” he observed.

He also said neither the revenue collection target nor the expenditure goal would be achieved in the next fiscal year as both the goals were much higher than those for the current fiscal year.

Towfiqul said that in keeping with the Seventh Five Year Plan target, the government would collect 14 per cent of the GDP as taxes cannot be implemented. “In a developing country, at least 15 per cent of the GDP is collected through taxes. But that's only 9.9 per cent here,” he added.

He also said people did not yet have a clear idea of how the government would implement the new VAT law and how VAT would be calculated.

He further said without the automation process, the NBR would not be able to substantially raise revenue income from value added tax.

 “The tax target should be realistic to ensure the fiscal balance,” he added.

CPD distinguished fellow Dr Debapriya Bhattacharya said the GDP growth would not accelerate without the acceleration of private investments.

"How can the GDP growth accelerate without the acceleration of private investments? If the government fails to bring any reform in the financial sector, the macro-economic scenario could become more vulnerable," he added.

"Without any reform in the financial sector and ensuring accountability in revenue mobilisation and expenditure, the operation against casinos will not be coherent," he added.