Economist and researcher Ahsan H Mansur on Saturday revealed discrepancies in reported financial figures, stating that while Bangladesh Bank reports non-performing loans (NPLs) at 11 per cent, the actual figure is 25 per cent.
Speaking at the Economic Reporters' Forum (ERF) dialogue on “Causes of Crisis in the Banking Sector” held at ERF’s auditorium in Dhaka’s Paltan area, Ahsan warned that increasing supply liquidity to Shariah-based banks could drive inflation and devalue the taka, urging immediate intervention to stabilise the banking sector.
Ahsan, who also serves as an executive director of the Policy Research Institute (PRI), pointed out that banks are currently showing profits by considering interest from loans as income without actually collecting the loans. They are also distributing dividends from these so-called profits, while the government is collecting taxes on them.
"In reality, the banks are not making any income; they are essentially consuming the depositors' money," he remarked, likening the situation to "selling household utensils to eat gourmet food."
He warned that deposits would eventually be exhausted, and banks would not be able to return the customers' money.
Ahsan highlighted that not only export data but also the most crucial information in the financial sector is being concealed. “The financial sector cannot continue like this for long. Due to lack of supervision, our currency market is out of control, and inflation is beyond our grasp,” he said.
He called for a tight contractionary monetary policy aligned with inflation targets. “The central bank needs to hike policy interest rates, halt currency printing, withdraw remittance incentives, and adopt market-based interest and exchange rates,” he asserted.
Ahsan emphasised the necessity of a strong forex reserve to maintain the confidence of donor agencies and foreign investors in Bangladesh.
Systemic problems
Addressing persistent issues in the banking sector, Ahsan criticised the ongoing neglect of systemic problems. Reforms to eliminate bad practices in the financial sector are essential for economic benefits, he noted.
The sector’s problems, including bad loans, irregularities, corruption, and money laundering, cannot be resolved by concealing them, he added.
Ahsan called for a comprehensive clean-up initiative spearheaded by the government and involving the central bank.
“Massive reforms in the financial sector require strong political commitment. Concealing data or manipulating information about defaulted loans or GDP will not aid recovery,” he warned.
"The situation is now such that the banks cannot even protect themselves, so how can they ensure the security of the depositors' money?" Ahsan questioned.
Dependency on loans
The presentations on the banking sector in the event mentioned that while the government has earned praise for constructing infrastructures like the Padma Bridge, this achievement is now overshadowed by high inflation, non-performing loans, and financial scandals.
As the regulatory authority of the financial sector, the responsibility falls on Bangladesh Bank. If immediate action is not taken on these issues, it could create major problems for the country's banking sector.
The presentations noted that due to financial distress, Bangladesh is becoming increasingly dependent on loans, and its ability to obtain loans is gradually decreasing.
Moreover, the government is not able to collect sufficient revenue to implement the budget. There is now a shortage of necessary funds and dollars for budget implementation.
The government is unable to pay bills in sectors like energy due to a lack of sufficient dollars. If the health of the banking sector is poor, it cannot bear any burden.
The weakness in the banking sector is preventing it from lending to both the private sector and the government.
Concerns over govt borrowing
Ahsan highlighted that currently, the growth of bank deposits is between 8.5 to 9 per cent. If it increases this year, it might reach a maximum of 10 per cent, meaning deposits will amount to around Tk 1.7 trillion. With the new fiscal year's budget target of borrowing from banks, Ahsan questioned how the banks would provide the loans.
“If the government borrows that much, where will the private sector get their money?” he asked.
Ahsan expressed disappointment that despite promises of extensive reforms in the financial sector before the elections, six months have passed without any significant action.
He drew parallels with India’s financial reforms in the 1990s, saying that India’s extensive reforms brought its financial sector back to stability.
“Similar reforms in the banking sector are urgently needed in the national interest,” he added.
The event, chaired by ERF President Refayet Ullah Mirdha and moderated by ERF General Secretary Abul Kashem, included presentations on the banking sector by Obaidullah Roni, a special correspondent for Samakal, and Sanaullah Sakib, a senior correspondent for Prothom Alo.
