Banking sector yet to meet global standards

The banking sector has yet to meet global standards for factors like changes in the definition of loan defaulters and undue interferences, said noted economist Dr Wahiduddin Mahmud on Sunday.

He said communicating with the rest of the world would be expensive unless the country's banking sector is not upgraded as per international standards.

Dr Mahmud made these observations as the guest of honour at the inauguration of a critical conversation styled 'Bangladesh Journey: Moving beyond LDC' at a city hotel.

The Bangladesh Institute of Development Studies (BIDS) organised the two-day event with the participation of the leading local economists, researchers, policy makers and academicians.

Planning minister Muhammad Abdul Mannan attended the event as the chief guest with BIDS director general Dr KAS Murshid in the chair.

General Economic Division (GED) senior secretary Dr Shamsul Alam was present as the special guest.

"There should be adequate research on determining bad loans, provisioning and other issues. Otherwise, reform initiatives will reflect the interest of businesses," said Dr Mahmud.

He said the country's banking system was at par with international standard once, but due to some steps it is now lagging behind.

The former adviser to a caretaker government said the country attained the demographic dividend at a pre-mature stage without the preparedness to utilise it.

He highlighted the need for a job-based education system and skill development effort from the school level.

On big projects, he suggested setting priority and doing need-based analysis before taking such projects whimsically just after getting suppliers' credit.

Dr Mahmud also questioned whether the economic sector is enjoying democracy in the current one party-led governance.

Accountability in financial management should be ensured at all levels through decentralisation, otherwise it will not work at field level despite directives of the high-ups, he added.

Dr Mahmud suggested offering timely support and incentives to the industrial sector based on performance rather than giving a wholesale facility for an unlimited period.

At the event, Mr Mannan said the government was trying to bring back the banking sector on track.

A job-oriented education system can reduce the number of educated unemployed people, he mentioned.

The minister said the influence of some special interest groups on a developing economy has been visible in many countries.

Meanwhile, GED senior secretary recommended allocating adequate funds for research on some crucial issues.

Two BIDS senior research fellows-Dr Kazi Iqbal and Dr Monzur Hossain-made two trigger presentations at a session on 'Critical issues in Macroeconomic and financial sector'.

Policy Research Institute (PRI) chairman Dr Zaidi Sattar chaired the session.

South Asian Network on Economic Modeling (SANEM) executive director Dr Selim Raihan said statistics department should be strengthened to make data and figures on GDP (gross domestic product) reliable.

It would be a pre-mature transition if the country shifts to the domestic market-led growth from the export-led growth, he observed.

Dr Raihan suggested timely protection of the industries and diversifying the export basket coming out of the pro-RMG (ready-made garment) bias.

He said support should be lent to the non-RMG exporters to attain export-led growth.

High protection of the domestic market is discouraging export, the expert went on to say.

He said the domestic market size is $300 billion while the world market size is $75 trillion. "So, the country should grab the opportunity."

Association of Bankers, Bangladesh (ABB) chairman Syed Mahbubur Rahman, also managing director of Dhaka Bank, said there is no need for more banks for dearth of skilled manpower to run the sector.

"Unhealthy and unethical competition is going on in the banking sector due to a tendency for short-term profit," he added.

The number of wilful defaulters is increasing. So, there should be a provision for exemplary punishment against them, Mr Rahman said emphatically.

Strong capital market and bond market are required to come out of the depositor-dependent banking system, he observed.

Meanwhile, World Bank lead economist Dr Zahid Hussain said real effective exchange rate (REER) could not help boost export, apart from ready-made garments.

"Currency appreciated by about 30 per cent since 2013, but the country could not reap its benefit for lack of export diversification," he added.

The monetary policy should address it and may take risks of floating rate as the central bank has $30 billion reserve now.

Dr Sajjad Zohir, executive director of Economic Research Group, said the National Savings Certificate should be a targeted instrument to help the small borrower enjoy its benefit.

He also questioned the reliability of the economic growth rate estimate.

Dr Hossain of BIDS in his presentation pointed out adverse selection, political interference, bankers' corruption, weak corporate governance and Bangladesh Bank's weak monitoring as key reasons behind increased non-performing loans.

He suggested introducing depositors' insurance scheme, improving corporate governance, merger and acquisition of banks, among others, as a way out.

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