Local think-tank Unnayan Onneshan has said that country’s banking sector was caught in a trap with high interest rate, excess liquidity and decline in growth in credit to private sector. In the July edition of monthly economic update, the UO said despite adopting deregulation and privatisation policy in the banking sector for more than a decade, the rate of interest and its spread are still too high to facilitate higher private investment.
The UO said politically-determined directorship in the state-run banks and family domination in private sector banks are resulting in meagre actions against the perpetrators.
‘Slack surveillance by the central bank also hinders management system,’ it said.
‘Poor risk management and high fraudulence, driven by captured governance and lax oversight, has resulted in truncated profits to the shareholders,’ it said.
The UO said that in January-April of FY 2013-14, the average rate of interest had been calculated at as high as 13.35 per cent and interest rate spread at 5.14, causing further decline in private investment.
It said excess liquidity had piled up in the banks with 64.09 per cent increase in the liquidity between the periods of November 2013 to March 2014.
‘Excess of liquidity in the banking system amounted to Tk 1, 36,201 crore at the end of March 2014, whereas the amount was Tk. 83,000 crore in November 2013,’ it said.
As regards the public and private sector credit, the think tank states that domestic credits recorded a decrease of 11.32 per cent at the end of March 2014 over March 2013.
‘Growth of credit in private sector registered at 11.46 per cent in March 2014 over March 2013 and witnessed lower than the growth of 12.72 per cent at the same time of the previous year,’ it said.
Besides the incidences of large scale scams, the risk management have weakened to a dismal proportion, the UO said noting that the non-performing loans increased to 10.5 per cent in March 2014 from 8.9 in December 2013.
‘The overall return on assets, which measures the efficiency of earning from the assets, stood at 0.9 per cent in Continued on 2013 from 0.60 per cent in 2012, whereas the rate was calculated at 1.3 per cent in 2011,’ it said.
The UO recommends for improvement in supervision and regulatory capacity of the central bank and streamlining of enforcement of prudential guidelines in order to check the incidences of scams and fraudulence and thus to ensure efficacy of risk management in the banking system.
-With New Age input