Businesses to come unglued if political turmoil continues

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Raihan M Chowdhury and Mohammad Ali | Published: January 09, 2014 00:00:00 | Updated: November 30, 2024 06:01:00

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The business of the banking industry will face a worse situation in 2014 than the last year if the prevailing political stalemate is not resolved, the chief of the bankers' association says.
In the last year 2013, the banking business was seriously affected mainly by the political turmoil, plummeting operating profit of almost all the banks.
"The year 2014 will definitely be worse for the sector comparing to the year 2013, if the political unrest continues," Ali Reza Iftekhar, newly-elected Chairman of the Association of Bankers, Bangladesh Ltd (ABB), told the FE in an interview recently.
And the impacts will also negatively affect the GDP, the country rating and the sovereign rating etc, he noted.
 "Because, I think that economic stability is impossible when the political instability exists," Mr Iftekhar said.
An extended post-election political crisis could unravel much of the recent economic progress in Bangladesh which is still counting the cost of a series of disasters in its vital garment industry, Ali Reza Iftekhar, also the managing director & CEO of Eastern Bank Ltd (EBL) said.
The bankers will able to spell out the level of 2014 worse condition exactly after the Bangladesh bank (BB) replies to an ABB letter, submitted recently for policy-relaxation in five separate issues.
Besides ABB, all the banks also separately sent letters to the central bank for such relaxation. The ABB is expecting to receive the BB's response within January 15.
Elaborating different negative impacts in the banking sector in 2013 due to the political turmoil, Mr Iftekhar said the banks' revenue stream became very low as they cannot do new businesses. In some banks, the growth in operating profit is negative while others could manage to continue the growth in 2013 but marginally.
The whole banking industry already faced negative impacts including overdue, classification etc in 2013, he said.
The BB, in the last stage of 2013, relaxed policies a bit on the provisioning for specific customers (such as time extension, flexibility in down payment), he said, adding that they also showed flexibility in some sectors including RMG, agriculture and SME in 2013, impact of which will just shift from worse to bad in 2014.
 "So, we have actually carried about 25 per cent problems of 2013 to the year 2014, as we didn't solve those. The banks will also have to face those in the days coming," he said.
In a question, the newly-elected ABB chairman said, "The election is a just a step, but its effect is important. We will not be able to achieve the economic stability unless we get the political stability."
Many businesses now don't show interest to take fund because how they will give interest on loans if they cannot invest the money. "So, we are in problems from two sides-the existing portfolio is deteriorating and we cannot expand business because of not getting right customers for loans."
However, thanks to the BB's recent policy relaxation already given, he hoped that their portfolio will improve a little. Otherwise, the banks would face more severe problems.
Based on the BB initiative, the ABB and all banks further sought relaxations from the central bank on some other specific issues to help the banking sector better face the ongoing challenges that include increasing trend of non-performing loans (NPL), resulting in poor demand of credit.
In its letter, the ABB sought relaxation on the provision for loss on investment in shares.
"We request for exemption of the provisioning requirement for 2013 and allow us to allocate the same over eight equal quarterly instalments during 2014 and 2015," the ABB letter said.
The ABB also demanded not to impose any bar on declaring any cash dividend for the shifting of the provisioning requirements.
The ABB wanted the BB's permission to the banks to make general provision against agri and microcredit at 0.25 per cent (like SME) instead of present 5.0 per cent.
The association also requested the central bank to relax the requirement of making provision from 1.0 per cent to 0.5 per cent on outstanding contingent liabilities, and the requirement of calculating capital adequacy from 100 per cent to 50 per cent on some items of outstanding contingent liabilities.
The ABB also sought the BB's support in approaching the National Board of Revenue (NBR) in reducing the taxation rate and also consider varying the rate based on type of classification.
Mr Iftekhar, as a new ABB chairman, also vowed to make the association an effective organisation that will demonstrate more where economy and finance impacts.
"As the ABB chairman, my first work will be to make the ABB as an effective organisation," he said.
The ABB should be consulted when the central bank move to bring major changes in the sector, he said, adding that he planned to hold 'quarterly meeting' among the businessmen, the regulator and the ABB to know the each other's problems. "If the meeting is held regularly, many problems can be solved through discussions," he hoped.
As a big community like ABB involved in the economic activities, its view will have to taken into cognizance of the concerned authorities, because the banks are also business house. At the end of the day, the banks have to give interest against deposit, think about any effect on profitability and give dividend, based on which their share prices up or down.
Mr Iftekhar said EBL achieved single digit growth in operating profit in 2013. Though it (growth) is not significant level but positive, as many banks witnessed negative growth.
 "We had to devote a lot of effort to achieve the growth," he said, and partially attributed the achievement to the bank's performance that could manage to contain the cost.
"The year 2014 will be challenging for us. Our main focus in the year is to reduce the NPL and contain the cost. If we can maintain these two, I think that the 2014 will not be problem for us rather than expanding the business," the EBL MD said.