Banks demand corporate tax waiver

National Commercial Banks, which are asked to suspend charging interest in April and May, are desperately in need of policy supports like tax and provision waiver to make up the losses.

Earlier, Bangladesh Bank in a circular on May 3 asked the banks to suspend interest for two month as part of government initiative to soften the impact of coronavirus crisis.

The BB directives caught the banks off guard, forcing them to see no income from interest, which is the lifeline for running commercial banks. 

All sectors particularly agriculture, SMEs and service sector, affected by coronavirus crisis, are facing challenge to meet daily expenditure as income has dried severely. Beside this, there are installments of bank loans to be paid at the end of each month which have landed them in trouble. In a bid to shoot the trouble, Prime Minister asked the banks to suspend interest for April and May and to deposit those bank interests in a blocked account.

According to sources in the Bangladesh Bank, the amount of deposits in the country's banks till February stands at Tk 11 lakh 50 thousand crore. Of this deposit, Tk 10 lakh 56 thousand crore has been issued in loans. Even if the interest on these two months loan is suspended, the interest on the deposit and the principal will have to be paid. This will mount pressure on the banks. Coronavirus is also less likely to help increase new deposits.

According to the bankers, the central bank's decision will reduce the income of banks by at least Tk 15,000 crore, landing the small banks in unchartered water and scaling down the income bulk for the big banks substantially.

On condition of anonymity, a private bank chairman said, such decision will spell danger for the banks and the policy is adopted under the vicious influence of business tycoons of the country.

These big shots want to debilitate the banks which will result in merger of weaker banks and finally the big fishes will end being bank directors. Instead of squeezing the big source of income for the banks the policymakers could sift through other options to cushion the coronavirus impact, claimed the bank chairman.

Insiders said that as general holiday since March 26 is in progress, so nothing is functioning. There will be no loan recovery. Prospects of new deposits are bleak as people's income has decreased.

Meanwhile, the government has announced an incentive package of around Tk 1 lakh crore. Of which, the central bank will refinance Tk 38,000 crore. The government will pay a portion of money itself but at least, half of the loan of Tk 50,000 crore will have to be paid by commercial banks. In this lean period of liquidity crisis, order for the banks to suspend charging interest will complicate the crisis.

Syed Mahbubur Rahman, former president of the Association of Bankers Bangladesh, an association of chief executives of commercial banks, and also Managing Director (MD) of Mutual Trust Bank, said, “Implementation of the central bank's directives on charging interest would reduce banks' income by at least Tk 6,000 crore a month.

Earlier, interest rate of 9 percent has been implemented from April 1. Now we have to see how profit of the banks nosedives.”

While talking to The Business Post bankers said that the businesses of the borrowers are closed and they won’t be able to repay the loan. The pressure of defaulting loans will mount in June closing. Now some policy concessions are needed to keep the banks afloat. The corporate tax of banks is much higher. The tax should be reduced by at least 10/12 percent. Banks have provisions against loans and the provisions against regular loans can be suspended in times of crisis. This will help the banks to absorb the financial shock over coronavirus crisis.

Southeast Bank MD Kamal Hossain said, “The decision to suspend interest rates could put banks at a loss. All businesses need incentives to weather crisis and initiatives should be taken to enable banks to giving them incentives. To this end, the government and the Bangladesh Bank have the opportunities to sift through.

It is to be noted that some policy assistances including reduction in Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), have been provided to the banks before relegating responsibility of package implementation to the banks.

Repo interest rates of central bank have been reduced for banks. The banks are allowed to sell government bill bonds to the central bank. In addition to all these initiatives, the Advance-Deposit Ratio (ADR) has been relaxed to increase the lending capacity of banks.

hr/wi/teb