Reducing NPLs, capital market representation key focus

Ashraf Ahmed, chief executive officer of Riverstone Capital Ltd, has recently been elected as the president of the Dhaka Chamber of Commerce and Industry (DCCI).

A graduate of the Institute of Business Administration (IBA) from the University of Dhaka, he worked in prominent multinational banks in the country, including ANZ Grindlays, Standard Chartered, and HSBC.

He discusses ins and outs of the industry in an interview with The Business Post’s Md Samiur Rahman Sazzad.

TBP: What are the major macroeconomic challenges Bangladesh will face this year, and how to resolve them?

Ashraf: In terms of macro-economy, last year’s challenges will continue. Our inflation and balance of payment (BoP) pressure are major issues.

But if we look at this year's monetary policy statement (MPS), both of these things have come to the fore and some concrete steps have been taken, which will hopefully start working in a few months.

The central bank is going to the crawling peg system, which will help stabilise the forex market. At the same time, the current account balance had a surplus of about $2 billion in December last year. If this continues, hopefully the balance of payment (BoP) pressure will end very soon.

TBP: Which policy advocacies the DCCI are considering now?

Ashraf: The key concern for DCCI in terms of policy advocacy is that the measures in the Monetary Policy Statement may limit the flow of credits to the private sector.

We are trying to work with the government so that the various SME financing windows of the central bank can be implemented as soon as possible.

Through this, the banking sector’s credit flow to the productive sector, especially the cottage, micro, small and medium enterprise (CMSME) sector will increase at the same time the central bank will be able to implement other initiatives.

Besides, if effective strategies are being taken for non-performing loan (NPL) reduction, we expect that the flow of loans to the non-productive sector will decrease. Our immediate policy advocacy focus will be the correct and speedy implementation of the policies being adopted.

TBP: During the last 15 years NPLs have increased by 4.5 times. What initiatives are needed to reduce NPLs?

Ashraf: The central bank faces a significant challenge in managing non-performing loans (NPLs). They are implementing various measures to reduce the overall NPLs to 8 per cent, aiming for 10 per cent in state-owned banks, and 5 per cent in private banks.

We have a capacity shortfall in the legal process to recover bad loans. Besides, the amendment made in the Banking Company Act last year has identified the willful defaulters separately. We have a chance now to collect the default loans from them.

TBP: How do we tackle the USD crisis?

Ashraf: In terms of the USD crisis, if you look back, why did it happen? The key reason behind the USD crisis in BoP was by FY22, especially during the Covid-19 crisis, our market had a large amount of trade credit that was payable from different parts of the world.

As a result, in 2022, when the USD exchange rate started to become volatile, the attraction of trade credit decreased, which in turn led to a lower credit amount.

Now the surplus trade credit of USD has been returned. No more pressure now. If the exchange rate comes close to the market value, then the USD flow will return to normal. We think we will start reaping the benefits in the next few months, and basically, the USD crisis is going away.

TBP: Money laundering is raising exponential concerns. What should be done?

Ashraf: I have said earlier that money laundering does not happen for economic reasons. Capital flight is one thing, money laundering is another. It is normal for capital to be deployed in places where the return is high.

We have exchange control regulations, which are not available in the developed economies across the world. America does not say you cannot invest in other countries outside of the USA. External investment is important for them.

The source of money laundering is illegal business and income, because normal business does not have one of these two. Though, it may vary in the laws of different countries.

TBP: You are a capital market expert. What is your overall observation?

Ashraf: After the election, we saw a full mile run in the capital market. As a result, the volume of transactions in the market has increased. I think this is good news.

Along with this, the good thing is that Bangladesh Securities and Exchange Commission (BSEC) is slowly lifting the floor price of stocks. As a result, confidence is returning to the market.

Looking ahead, if we consider the prices of individual stocks, there seems to be no clear reason for a significant increase in the overall stock market index. Because of the overall money market and economic scenario, the outlook for the growth of earrings this year is not the same.

I think the trade volume in the market is a stronger indicator than the index to see the health of the market.

TBP: Our market capitalisation to GDP ratio is only 16-17%. Do you have any recommendations to increase it?

Ashraf: If we say specifically, big sectors including textile, media, FinTech, which are contributing to the country’s GDP, are unrepresented in the capital market.

Besides, the food processing sector is constantly growing. But their presence is almost non-existent in the capital market.

We have to take initiatives to bring such entrepreneurs into the market, such as the MFS Bkash.

But these entities do not have any special assets in the conventional sense. In such cases, when you go for a Maximal Extractable Value (MEV) based pricing model, the full picture will not be reflected.

If you want to reach companies such as Uber and Amazon, it is difficult because they have no physical assets. Yes, the business does not come from it. But in terms of IPO pricing, MEV, Net Asset Value is a big consideration, which will not come in case of these companies.