Throwing the baby out with the bathwater

So, now we have it. No less than the Finance Minister has said private banks aren't the government's responsibility. The obvious reference was to all the bad debt that has come to light and choked liquidity. With some non-banking financial institutions (NBFI) tossing up interest rates close to 12% for deposits, businesses that have played by the rules will have to cough up extra for loans. That was the basics behind the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) seeking an urgent meeting with the regulator. The spin-off effect will in some form of shape come back to bite the general individuals.

Twice, one private sector bank has been found guilty of illegal transfer of funds overseas. There are fresh allegations about dubious loans given out by Farmers' Bank -- none of the beneficiaries have much to do with farming. It seems to have become a curious case of 'it wasn't me', trumpeted by most of the persons that were removed from office. Beyond firing top management, visibility of return of such funds is minimal. It has reached levels where the former Chairman of Basic Bank is on record as saying while he wasn't responsible, he could retrieve those funds given another stint. After all this, the government is actively considering issuing more licences for private banks.

Debt continues to grow and private sector credit has spiralled beyond the set targets resulting in the Bangladesh Bank asking banks to reduce their deposit/ loan ratio and pull back on consumer credit. What it hasn't done is provide much by way of specifics in what sectors loans should be approved for or not. Nor has it intervened in certain government funds being deposited with such banks and now getting stuck. Public sector banks are now loaning money to private sector banks to help the liquidity shortage, even as they up the interest rates for deposits, both processes with the tacit approval of the regulator. Obviously, there is a demand for loans, even at high-interest rates, in which case the 'cry wolf' of businesses is a damp squid.

Depositors seeking guaranteed return on investments are flocking towards bonds and in some cases fixed deposits. The share market's saucy behaviour has led to a major erosion in confidence, even for those gambling in short-term profit taking. Unseasonal discounts and sales campaigns are as alarming, suggestive of a stagnancy in turn-over and piling up of stocks. There is a limit to which the government can afford to prop up banks and financial institutions. That could well be echoed in the Finance Minister's statement. It is a mess that cannot be allowed to exacerbate. While that's the first stop, cleaning up the culture of unbridled and unchecked bad loans has emerged not as a 'to do' but a 'must do'. Throwing the baby out with the bathwater isn't an option.

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