How safe are the new products of banks ?
Sunday, 25 April 2010
The new forms of investments by the banks have proved to be popular. For example, according to a recent report in this paper, the purchases of 90 per cent of privately owned cars on the roads of Dhaka city during the course of the last couple of years were done with bank loans. Banks are also extending loans in areas of consumptive activities ranging from marriage to financing the needs of holidaymakers.
But is should be noted that most of the new banking loans are largely of a highly consumptive nature and not so much productive ones. The same do not create as much jobs or expansion of the economy as previous investments of the banks in industries and trade accomplished. Besides, it is also a question mark whether these loans related to servicing living standards of people can remain 'well performing' in the long run, if the overall economic conditions decline. For example, car loans may not be serviced smoothly by middle class loan takers. Housing loans may not be serviced likewise in case of a general downturn in the economy leading to job losses and dwindling income of those who are now taking these loans.
Thus, the banks need to review how far they can progress further with such loans. Banks need to re-orient their loan programmes into small and medium enterprises that would both help expansion of the economy and help underwrite the security of their loans.
Minhajul Islam
Twin Tower
Shantinagar, Dhaka
But is should be noted that most of the new banking loans are largely of a highly consumptive nature and not so much productive ones. The same do not create as much jobs or expansion of the economy as previous investments of the banks in industries and trade accomplished. Besides, it is also a question mark whether these loans related to servicing living standards of people can remain 'well performing' in the long run, if the overall economic conditions decline. For example, car loans may not be serviced smoothly by middle class loan takers. Housing loans may not be serviced likewise in case of a general downturn in the economy leading to job losses and dwindling income of those who are now taking these loans.
Thus, the banks need to review how far they can progress further with such loans. Banks need to re-orient their loan programmes into small and medium enterprises that would both help expansion of the economy and help underwrite the security of their loans.
Minhajul Islam
Twin Tower
Shantinagar, Dhaka