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Three more banks coming up soon

Govt about to give them licence, says Muhith who sees no mess in banking sector

FE Report | November 28, 2017 00:00:00

Finance Minister AMA Muhith said Monday the government is going to give licence for establishing three more banks, ruling out any mess in the country's banking sector.

"Not two, we're giving (permission for) three new banks," he said while talking to reporters at Dhaka Club following a seminar on the Bangladesh's insurance sector.

A UNB report said turning down the notion of a messy situation in the banking sector riddled with irregularities and lacking good governance, the octogenarian minister noted that banks failing to operate properly would go for merger.

"There is a provision in the banking law for merger. So, if any one fails, it will go for merger," he told the reporters.

Defending the government move for allowing more banks in business, Muhith said still there is huge market for banks as a good portion of people still remained unbanked.

There are reports that the central bank recently rejected proposals for setting up three new commercial banks on grounds that the deteriorating financial health of many banks, especially of the nine that were last set up, do not allow any new bank.

Two of the three proposed banks are Bengal Bank and People's Islami Bank. The name of the third one, and its owner, was not known yet.

The Bangladesh Bank conveyed its opinion to the Banking Division when the central bank was asked to scrutinise the proposals for opening three new banks.

A ruling-party lawmaker and owner of Bengal Group of Industries has moved for the Bengal Bank while a Chittagong-based businessman, MA Kashem, pursues for People's Islami Bank.

The finance minister could not remember the name of the proposed third one in the queue.

At present, there are 57 banks in Bangladesh. Of them, 40 are local private banks, nine foreign and eight state-owned.

Officials at the central bank believe that the financial health of many banks is not good and it would have deteriorated further if there was no policy support from the regulatory authority.

As per a Bangladesh Bank letter to the finance ministry, as of December last year, the total default loans in the banking sector stood at 9.2 per cent and the capital-adequacy ratio 10.8 per cent of risk-weighted assets. Total stressed advances (defaulted and rescheduled loans) rose to 17.2 per cent, up from 16.1 per cent a year before.

While addressing the seminar, titled 'Protecting the Poor: Emerging Micro Insurance Market in South Asia', the finance minister said the government would give extra focus on the flourishing of insurance sector as it lagged behind other sectors of the economy.

He said contribution of insurance sector and its coverage do not match the country's growing economy as it contributes less than 1.0 per cent to the GDP (gross domestic product).

He admitted that the insurance sector did not get proper focus from the government.

The minister, however, extended his support to the demand of insurance sector to make it mandatory for an NGO to make a 'bank assurance' before microfinance lending to any project.

It is among a set of promises he made for insurance-sector development, including reduction in licence-renewal fees, providing incentives for innovative products and making insurance academy an effective one.

He said the government is going to take some steps so that the country's insurance sector could realise its full potential. The sector needs a new life.

"We neglected the insurance sector. The growth in insurance sector mismatches the national growth. The growth should have been at least 4.0 per cent of GDP but it is mere 0.7 per cent. We will make some developments in the sector," he said while speaking at the inaugural session of the seminar in the city.

Bangladesh Insurance Association (BIA), Bangladesh Institute for Professional Development and Insurance Institute of India (III) jointly organised the regional seminar titled 'Protecting the poor: Emerging Micro Insurance Market in South Asia'.

The finance minister noted that the sector has dire crisis of skilled manpower.

"If we can improve the insurance academy, the sector would get trained manpower," he told his audience.

The minister also opined that insurance for bank loans has to be made compulsory for development of the insurance sector.

Mr Muhith said the Insurance Development and Regulatory Authority (IDRA) is not only a regulatory body, it is also a development authority. They should get funds from government, instead of earning from licence renewal of insurance companies.

Observing that NGO-MFIs are taking on the role of insurance company the finance minister said: "We have to think about it."

Speaking at the programme, Secretary of the Bank and Financial Institutions Division of the finance ministry Md Eunusur Rahman said there is trust and confidence deficit among the people about insurance sector.

"The industry people must think about it and take steps to bridge the gaps," he said.

He said Bangladesh is clearly ahead in many sectors, but in insurance, the country is lagging six times behind India.

"It is only because we did not pay necessary attention to the sector," he said.

The secretary urged insurance companies to create awareness across the country on the need and benefits of insurance.

Presiding over at the programme, BIA Chairman Sheikh Kabir Hossain said it is not true that the country's insurance companies do not pay insurance claims. The sector paid Tk 60 billion in claim settlement in 2016.

He urged the insurance companies to simplify the settlement of insurance claims.

IDRA Chairman Shafiqur Rahman Patwary, Secretary-General of III P Venugopal, first vice president of BIA Rubina Hamid and Convener of Seminar Committee of BIA K M Mortuza Ali also spoke at the function.

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