BB lacks adequate monitoring system to check credit flow to wrong hands

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FE Report Senior economists at a focus group discussion have questioned about the central bank's expansionary monetary policy approach. They said on Saturday, Bangladesh Bank (BB) doesn't have adequate monitoring system to check credit flow to wrong hands. They identified high bank interest rate, unavailability of land, dearth of utilities and political chaos as the major challenges. This will impede fresh investment, more employment generation and efforts to contain inflation as the monetary policy seeks, they pointed out. The economists said, any decision on using foreign exchange reserve for development projects would be catastrophic for the country's overall economy. Former Finance and Planning Adviser Dr Mirza Azizul Islam, and former Bangladesh Bank Governor Dr. Salehuddin Ahmed spoke as guests of honour while BB Chief Economist, Dr Hasan Zaman presented the keynote paper. "Inefficient transmission mechanism, lack of competitive financing system and poor administrative capacity for monitoring baking system are the three major challenges before the central bank," Mirza Azizul Islam pointed out. He said, rising non-performing loans would adversely affect the overall banking sector in the future. "It would be quiet difficult to achieve 18.5 per cent credit growth when interest rate is high, utility is unavailable and political violence imminent," Mirza Aziz said The rising deposit rate would see further competition when new banks will start operation and seek deposit from the already shrinking market, he added. Dr Salehuddin said, the central bank has failed in monitoring credit flow. This is because most of private sector credit was diverted to other sectors instead of small and medium enterprises (SMEs) and banks treated credit for many other sectors as SME loan, he said. He said, the government will face serious trouble if it decides to use foreign exchange reserve in development activities. "If the economy sees 8.0 per cent credit growth, investment and employment should be much more better than what happened in Bangladesh," he added He suggested the central bank to come out from formatted approach in framing monetary policy. "The monetary policy should be more creative, implementation-oriented and not only based on data," he suggested. Former Commerce Minister Amir Khosru Mahmud Chowdhury MP said, most of credit flow goes to the wrong hands as investment space is very limited due to shortage of land, utilities and high interest rate. Financial Excellence Limited (FinExcel) organised the discussion on monetary policy in Bangladesh where its vice chairman and Chairman of ICC Bangladesh Standing Committee on Banking Techniques and Practice Prof. Mamun Rashid presided over the session. Director and shareholders of FinExcel, Managing Director of Mercantile Bank Limited Ehsanul Haque, Managing Director of Premier Bank Limited KAM Majedur Rahman, senior bankers, representatives of insurance companies, macro finance organisations, and IT professionals attended the programme.