CA prefers calculated risks by banks with small enterprises

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Siddique Islam
Chief adviser (CA) Fakhruddin Ahmed wrote a letter to the Bangladesh Bank Governor Salehuddin Ahmed recently suggesting measures to reduce excess liquidity in the banking sector through increasing lending to new sectors with low capital requirements and to small entrepreneurs having innovative ideas.
The CA also advised opening up of a cell by the central bank to help restore confidence of businessmen, who are allegedly being harassed while dealing with banks.
The aggrieved businessmen would be free to lodge complains with the cell against banks concerned for asking unnecessary questions or making delays. The CA suggested that the cell would make promise to respond to complaints within two-working days.
The CA wrote the letter in the light of the dialogue held between the top brass of the government and business leaders on September 05 last, a highly placed source told the FE, adding the BB has already taken some measures in line with the CA's suggestions.
Besides, the CA drew attention to the central bank chief about the existing requirement for reporting to the BB about all cash transaction above Tk 0.50 million and said that banks need to be asked to report only suspicious transactions above Tk 0.50 million.
Regarding excess liquidity in the banks, the CA suggested to take proactive actions, in particular by the senior management of the banks to spend a little more time with prospective borrowers in advising them on the sectors with good prospects.
Excess liquidity of the scheduled banks stood at Tk 142.79 billion at the end of June last against Tk 95.91 billion of the corresponding period of the previous year, according to the BB's statistics.
"I have some sympathy with the comments of a young entrepreneur that banks run after collecting bad loans than looking for new, innovative entrepreneur," the CA said. He also mentioned in particular about the prospect of providing funds to the entrepreneurs of the ICT sector.
The banks must be encouraged to move into new sectors with low capital requirements and to small enterprises, he said, adding that the BB should also follow up with the banks and monitor progress regularly.
"I would rather have the banks take some calculated risks with small enterprises than keeping excess liquidity in their accounts," the CA noted.
Fakhruddin, who was the immediate past governor of the central bank also suggested the BB for taking measures to increase competition in import through organising smaller importers across the country.
"It may be useful if BB, banks and trade association representatives work together both at Dhaka and other towns, particularly where BB has branches," the CA said in his three-page letter.
In his letter, the CA said: "It is being mentioned again and again that banks recently have been asking questions about source of funds of those who want to open letters of credit (LC) against import. While this may not be true in fact, perception cannot be brushed aside, and must be removed with deliberate actions".
The central bank needs to sit down with banks more frequently and make public statements, clarifying its position, the chief advisor suggested.
The CA also suggested to encourage banks to increase lending to small enterprises and adopt a target, even if firm, for lending to these enterprises.
"The target may vary from bank to bank. BB should also review how it can leverage its small enterprise refinancing window," the former central bank chief added.
The CA also suggested the BB to encourage subcontracting by small enterprise, as a strategy, by paying special attention to the financing needs for such enterprises.