Need for financial regulation in a booming economy

What is just or what is ought to be done? To realize mounting up default money from willfully powerful defaulters or to shadow them by lessening burden of public money by maneuvers? What are their opportunity costs judging with the benefit of the financial sectors or of the real economy in its true sense?

Resorting to measures for showing up artificially made less bloodletting of banks particularly state owned commercial banks (SOBs) and other non - banking financial institutions (NBFs) will it turn off reality prevailed in financial regime? Or will speak the truth of the health of SOBs and given that the financial sector of the country is bank-based, the poor health of this sector will also impact economic growth?

How hilarious is this that the ever expanding non-performing loans (NPLs) are being hidden by ever increasing loan rescheduling, classification and write-offs! In addition, other steps are being taken to solace big defaulters and if it is continued, it is tantamount to maneuvering the efforts of showing lesser extent of defaulting; even banks have not been suffering from any havoc default culture. 

Such a shadowing of rip-offs would speak the truth. Could we say Sir, it would negate the reality that in terms of asset quality, NPL as a share of total loans was exceptionally high in SCBs and DFIs (different financial institutions) during 2008-2018 (Bangladesh Bank). As of June 2018, SCBs had 28.2 percent NPL, which is highest in the last 10 years.

Classified loans as a share of were more than 10 percent for nine banks during 2016-2018. ICB Islamic Bank had more than 60 percent and BASIC Bank had more than 50 percent classified loans during 2016-2018. The actual percentage of classified loans would be higher if loans were not written off.

Classified loans are piling up, because despite the existence and revision of guidelines such as the credit risk guideline, risk grading system and liquidity management system, they are not being followed or implemented. Moreover banks are not held accountable and not taken to task for not following the guidelines. Even the WB and ADB in their latest reports of economic evaluation upheld the unsmiling scenario of banks' particularly SCBs and DFIs' governance lacking.

We have splendid achievements in other real economic sectors, not to speak of only growth that meets near target. We are among the top five fastest growing economy in the World, said the World Bank report. We are running with same stride with India, Bhutan in South Asia and higher growth achievers are Ethiopia, Ruanda, Jiboti, Ivory Coast, Ghana etc. Our export led and dynamic consumption dependent growth nature break down the tradition by coming forward of robust manufacturing sectors. That demands another discussion to be done later.

But can you deny Sir, volatility in financial sector for some handful willful defaulters and scams would infect negatively the growth of other sectors had we take the issue of productivity, employment and investment into cognizance. And all are getting worse only due to lack of Bangladesh Bank's autonomy. Then why providing umbrella to rip-offs has become your one of tasks? Then again question can it shield banks from risk based "Capital Adequacy" (Bangladesh Bank 2014).

According to guidelines, banks in Bangladesh must maintain a minimum total capital ratio of 10 percent in line with Basel 111. However, SCBs have failed to maintain the minimum capital adequacy requirements since 2013 (Bangladesh Bank 2018). On the other hand, development finance Institutions (DFIs) have remained critically undercapitalized during 2008-2018. Among the private commercial banks (PCBs), both BASIC Bank and ICB Islamic bank were critically undercapitalized as of June 2018. Liquidity fluctuation has become a recurrent phenomenon during 2008-2018.

All are happening due to increasing scams, irregularities and heists that caused draining out to the amount of Tk 22,501 crore according to media. Could one justify the recurrent recapitalization of SCBs by the government from public money that stands to Tk 15,705 crore? Has there been any moral support remaining in this culture?

Why the masses would bear the brunt of mal governance caused by others mal practice, dictating loan sanctioning, inefficiencies and willful non-compliance of reforms and guidelines of Bangladesh Banks. Why? Prime Minister directed banks to bring down interest rate in a single digit. If the banks suffer from high cost of doing business, how PM's desire and directives be complied with. Our stands and views are open.

Our graduation to developing economy, not to speak of only growth achievement by one or two variables, economy is invigorated in rural sectors, in agri and non agri subsectors, in rapidly expanding non-formal sectors with robust demand functions, ever surfacing mega projects those are giving messages of Bangladesh entering into a vista of uplift that would turn up the fate of the people, infrastructural revitalization including energy with having a perennial setback in private investment etc all are to be marred or crippled by only financial sector's disarray could not go accepted. We love our offspring.

That does not mean we would foil doctor's decision to give them bitter medicine. That is why we are critical to the ongoing of financial sectors from purely economic discourse. This narrative is originating from our uneasiness looming in financial sectors for the sake of macroeconomic stability which already has reached a commendable height.

The banking sector of Bangladesh is now faced with concentric circles of challenges. These challenges originate within the bank, pervade into central bank and finally proliferate into a broader challenge of political economy. Here any softness towards willful defaulters, corruption and inefficiency and on the other side pursuit of culture of impunity and protection demand weighing up people's perception.

The more leniency shown, the more public money will get siphoned off abroad in the mask of under and over invoicing in trade without having its way to job creating investment. The last example of leniency shown on 1 April when the central bank relaxed its write-off policy for non-banking financial institutions (NBFIs) as it had done for banks on February 6 this year. The NBFIs are now allowed to write off from their balance sheet default loans hovering in the bad category for three years, down from five years previously. They also do not have to file any case with "Artha Rin Adalat" to write off delinquent loans of up to TK 2 lakh from TK 50,000 previously. Bangladesh Bank usually adopts the same policies for banks and NBFIs on loan rescheduling, classification and write-offs.

Experts view that the write off policy would allow banks to artificially show lower default loans on their books. The central bank introduced the write-off policy in January 2003 aiming to put the brakes on rising default loans. But move turned out to be a disappointment as banks and NBFIs failed to recover a majority of the written-off loans.

Recovery fails to keep pace with default loan spike. In 2008, banks recovered Tk 13,392 crore of NPLs, up 5.86 percent from a year earlier, while delinquent loans in the sector soared 26.38 percent to TK 93,911 crore. Even the last amendment of the existing loan rules to extend more facilities to defaulters has got into an aerial turn. Such a pass will also make difficult to achieve government's fiscal target we are dreaming for. Our last humble question is: who will inherit the burden of TK 37 thousand 866 crore in book keeping due to write-off?


The writer is a freelance contributor

---Haradhan Ganguly