It\\\'s difficult time for banks

A completely different situation is now prevailing in most private-sector commercial banks. Branch managers are now asking their subordinate officials to rope in new borrowers instead of depositors.
The bulging idle funds are forcing private banks to launch vigorous drive to dispose of funds as fast as possible. In the case of state-owned banks, however, any change in the liquidity does not matter. Their management seldom demonstrates aggression either to mobilise deposits or lend out funds except for doubtful cases. These banks pursue a sort of 'business as usual' method in their operations.  
However, private commercial banks are finding it hard to rope in borrowers, big or small. In fact, the prevailing business environment is not that conducive to aggressive lending. Not many people are interested in borrowing from banks to invest either in trading or manufacturing. The blame, of course, goes to political uncertainties.
The private sector credit growth until November this fiscal was at least 4.5 per cent below the target set for the current fiscal. The violent political unrest in recent months has contributed to the slower credit disbursement as the businesses did not feel like making new investments. But a few old and chronic problems such as poor infrastructure and high cost of funds also continued to discourage investments.
The year 2013, in fact, was a bad year for the banks, in terms of profitability. They witnessed a fall in investment, rise in their non-performing loans and low profit in the just concluded calendar year. Can they expect anything better in the year 2014? As of now signs are not that healthy.
For making a turnaround in their business, the banks need to invest their idle fund which is quite big in size. But unless and until the political situation stabilizes in its truest sense, businesses are unlikely to demonstrate any heightened interest in taking loans from banks.
Following the discontinuation of disruptive political programmes such as strikes and road blockades by the main opposition led-18 party alliance from the second week of the current month, an apparent normalcy has now been restored in trade and business activities.
But whatever the leaders of the new government say in public or try to demonstrate their strong grip on power, businesses are not fully convinced, it seems. They have a strong fear that political troubles will stage a comeback unless the ruling Awami League and the opposition BNP engage in a fruitful dialogue to resolve the issues that had led to serious troubles prior to the holding of a one-sided general election on January 05 last. It is hard to say when fresh political troubles would start. It may start after some months or may be after a year if no initiatives are taken to find out a solution.
So, businesses might like to wait for some more time to make their new investment decisions. The number of new investment proposals, from local and foreign entrepreneurs, in 2013 was far lower than that made in the previous year (2012).
The Financial Expressed recently talked to a number of trade-body leaders and major industrialists to know their reading about the situation following the discontinuation of the political agitation by the opposition. All of them appeared to be nervous about the future political situation.
The head of the apex trade body, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), Kazi Akram Uddin Ahmed admitted that despite resumption of business activities in full swing, the confidence for big investment was still lacking.
The owner of a large steel goods-manufacturing unit, located in Chittagong, said the situation as of now looked alright. But he was not certain how long things would go like this.
A number of apparel exporters said overseas buyers are still confused about the political situation in Bangladesh and uncertain about a lasting political stability. The buyers are now placing a fewer number of orders, they said.
So, since the prospect of fresh investments in the short-term appears to be not that bright, the banks are unlikely to rope in many large investors. Moreover, many investors needing substantial amount of funds have been borrowing from foreign sources at much cheaper rates of interest. The foreign loan committee at the Board of Investment against the backdrop of a reserve of more than US$ 18 billion has been a bit generous in granting permission to such borrowers. In 2012 it allowed the private sector to take foreign loans worth $1.5 billion.
Are the banks now investing funds in stocks in a large volume to get quick return? Indications are that institutional funds have been flowing into the stock market in recent weeks. This has led to nearly 600 points rise in the general index of the Dhaka Stock Exchange (DSE) over the last couple of weeks. It is time for the Bangladesh Bank to maintain a close watch on the banks' investment in stocks.
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