Banks and financial institutions are facing a major crisis, triggered by rising troubled loans, high concentration on large borrowers and the lack of due diligence in credit disbursement, speakers have said.
The warning came at a seminar on "Restructuring and liquidation of financial institutions and impact on stakeholders" in the city on Thursday last.
Economic affairs adviser to the Prime Minister Dr. Mashiur Rahman attended the seminar as the chief guest while chief executive officer of IDLC Finance Arif Khan presented the keynote paper.
President of the Dhaka Chamber of Commerce and Industry Osama Taseer said high level of non-performing loans is weakening the banking sector's ability to lend.
"The high NPL impacts the financial sector as well the economy significantly as it squeezes the credit recycling largely," Mr Taseer said.
He said this is high time the authorities set a benchmark of sour loans across the financial sector and imposed restrictions on the poorly-performing institutions in collecting deposits.
The DCCI chief said that slow loan recovery is a serious concern in the financial sector.
He was also critical of the high deposit rates, arguing that this pushed up the lending rate.
High deposit interest rate in turn increases the lending rates, impacts the private sector credit flow--from smaller firms to large businesses, the chamber leader said.
Given the fragile state of financial institutions, Mr Taseer recommended establishing a financial sector restructuring authority.
He said some policy reforms need to be taken to address the sorry state of financial institutions.
In his speech, Dr. Rahman stressed keeping confidence in the financial institutions.
Still, he advised the investors or depositors to invest or deposit their hard-earned money "carefully."
He called for policy reforms, modernisation and policy simplification for a strong financial market.
Dr Rahman said the financial institutions should conduct internal and external audits in a transparent manner on a regular basis.
About the capital market, Dr Mashiur said it lacks good shares and good companies.
For this reason, the investors have to rely on poor quantity of shares to trade.
He urged large companies to float shares in the stock market and invest more in the manufacturing sector.
While presenting the keynote paper, Mr Khan said banks should be discouraged from the long-term lending so that the bond market can be developed.
Saying that banks take short-term deposits--say for one year, he asked, "How can they go for long-term financing?
He underlined the need for good governance, strong monitoring by the central bank, penalising the wrong-doers in order to bring down the level of non-performing loans.
He also stressed the need for the consolidation of non-performing banks, greater freedom of the central bank, restructuring of weak financial institutions, increasing Capital Adequacy Ratio without breaching the advance on deposit ratio to resolve the crisis in the financial market.
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