Home ›› 24 Feb 2023 ›› Front
Soaring non-performing loans (NPLs) and rampant money laundering through hundi pose a serious threat to the country’s economic development as these are squeezing the availability of funds for investment and putting pressure on reserves, creating barriers to foreign currency inflows.
Eminent economists and business leaders came up with the observations at a seminar titled “Biannual Economic State & Future outlook of Bangladesh Economy: Private Sector Perspectives” organised by the Dhaka Chamber of Commerce and Industry (DCCI) in Dhaka on Thursday.
They also blamed political influence in approving loans for an unusual rise in NPLs, saying that hundi, a tool to launder money, is a major obstacle while the country is graduating from the LDC status.
Although the government is trying to rein in NPLs and stop the hundi business, still no progress is seen in this regard, they added.
As a result, they said, banks are facing liquidity crisis, lending rates are increasing, and forex reserves is shrinking.
Amid the situation, stakeholders recommended taking stern action against those who are involved in offences. Otherwise, the country will fail to achieve its goal. According to the central bank, NPLs hit a record Tk 1,20,656 crore at the end of December last year from Tk 1,03,273.78 crore in 2021. It means bad loan has increased by Tk 17,383 crore within a year.
The regulatory data shows that remittance earnings increased by 4.25 per cent to $12.45 billion in the July-January period year-on-year. Experts claimed that though earnings have increased, a big amount of remittance didn’t come through proper channel.
In his keynote paper, DCCI president Sameer Sattar said private sector credit is yet to reach its target due to increased public sector credit. In H1 of FY23, private and public sector credit growth reached 12.8 per cent and 26.6 per cent respectively against the projection of 13.6 per cent and 33.3 per cent respectively.
“Private sector credit is severely constrained due to rising NPLs. To reduce NPLs, stern measures need to be taken for quick loan recovery. The central bank can identify habitual defaulters and engage with various institutions and stakeholders to reduce the current backlog in recovery cases.”
He added, “Furthermore, quick reform of existing laws by introducing the advance-to-deposit ratio (ADR) and asset management companies is required to substantially reduce NPLs.”
South Asian Network on Economic Modeling (SANEM) Executive Director Selim Raihan said that Bangladesh’s two major economic drivers--exchange rate and bank rate--are still not on market-based. The exchange rate has increased and it’s helping the exporters, but is also creating huge pressure on the inflation index and investment.
“People are under pressure due to soaring inflation. We have to careful that our discussion should not be limited to the macro economy. We have to talk for the mass people.”
“Investors could not secure loan at low interest due to NPLs. Influential people and politicians are key influencers for NPLs. That is why it is increasing day by day, though it should reduce.
“To increase remittance earnings, the government has increased the exchange rate and providing cash incentives. But remittance earnings are yet to be stable. If the government increases the exchange rate to Tk150 for per USD and fails to curb hundi, expatriates will not send their currency through proper channel.”
Selim Raihan said money launderers are involved with hundi business, and they are paying more to the expatriates than baking rates. On the other hand, expatriates are also facing hassle when they return to the country.
“That is why expatriates are not showing interest to send earnings through legal channel. Creating awareness and proper enforcement of laws could curb hundi.”
Selim said that the country will graduate from the Least Developed Country status in 2026. But its economy is developing on the per capita basis. Many countries such as Brazil, South Africa and Sri Lanka backed to the LDC for same reasons.
He added that Bangladesh’s economic growth is driven by the readymade garment and remittance. But to make the economy sustainable, it must have to be diversified.
Mutual Trust Bank Managing Director and CEO Syed Mahbubur Rahman said that due to NPLs, cost of borrowing has increased. “There are 61 commercial banks and its need huge deposit to ensure liquidity. Due to NPLs, a big amount of liquidity has blocked.
“That is why we have to collect deposit at high interest. Some banks are collecting deposits at 7.5 per cent interest rate, so how we will disburse loan at 9 per cent interest?,” he questioned.
He continued, “I think political influence is a key reason behind NPLs. If the government takes strict action against the defaulters, it could not spread.”
Stressing the need for remittance growth to secure better forex, he also underscored on good governance and efficient resource management to ensure the stability in the financial sector.
PHP Family Director Mohamed Ali Hossain said that tax policy should be a long term. “Investors invested based on a policy, but it changed. Amid the situation, our investment plan has been stuck. Tax policy should be long-term and short-term basis. If the government takes measures to change it, they should inform us before.”
“If we can ensure more resilience, consistence and friendly-business ambience in Bangladesh, this will help the investment and enable the government to collect more tax in future.”
Commerce Ministry Senior Secretary Tapan Kanti Ghosh said that the country is going to graduate from LDC status in 2026 and there is no reason of fear for that. But the country has to change their policy for several areas, and it needs a huge homework.
“After the graduation, we will lose many facilities, and have to ensure 50 per cent value addition. Besides, we could not provide cash incentives for exporters due to the WTO barriers.”
“Since 80 per cent of our economy is driven by the private sector, the private sector should get ready to face these upcoming challenges. We have to ensure value addition, and that is why more investment in backward linkage is necessary.”
Mohsina Yasmin, Secretary (Additional Charge) of the Bangladesh Investment Development Authority (BIDA) said, “We are providing 18 services through online and one-stop, but the investors did not come to us and go to the respective authority.”
She encouraged local and foreign investors to use this OSS platform for time and cost-efficient services to enhance the investment in Bangladesh.
