ACCORDING to reports, the banks in Bangladesh currently maintain a huge surplus of liquidity Excess of funds with the banks suggests that they are not doing business at the expected level which consists in facilitating borrowings by the entrepreneurs and investors. For the economy, a high or undesirable amount of idle money in the bank signals insufficient investment activities and the consequent non- attainment of the desired economic growth.
The management of the banks maintain that they are constrained by their classified loans in lowering the interest rates. This is probably not a valid reason because the banks in most cases can cut down on their waste and improve efficiency which might enable them to make reasonably good profits even after lowering their interest rates on loans. Not all the banks suffer in the same degree from the burden of unusually big classified loans and these ones, that do not, can afford to lower the lending rate to the expected degree. The new banks do not have classified loans or a few of them carry such burden. Thus, there is no reason for them not to set their lending rates at a lower level. In fact, the lowering of the lending rates by the new banks could create competition for the older ones and counsel them to lower interest rates, as well, to survive in the competition. The lowering of the interest in all cases will stimulate borrowing and soon the mountain of excess liquidity in the banks is very likely to be reduced in size.
Besides, the management of the banks will have to be persuaded to become dynamic to overcome this situation regarding idle banking funds. In other countries with a strong banking or financial sector, the bankers themselves are full of new ideas. They take the initiative themselves to talk to their prospective clients and get the latter interested in the projects they have in mind. Thus, instead of waiting for the clients to come to them with loan applications, the management rather go out and meet the potential customers and sell their ideas of new projects or enterprises to them.
Such forward looking banking is still a far cry in this country which explains considerably the unsatisfactory rate of investment of banking funds. This situation can be overcome only with the top management of the banks actually taking a serious interest in proactive or innovative banking and making it a matter of policy to be practised under compulsion by management down the line. However, the banks will have to acquire and increase their capacities, too, to embark on such proactive banking.
There are good investment outlets for the banks in the country's textile sector. They can help the growth of linkage industries in this sector by providing loans to entrepreneurs on easier terms and conditions. The banks can pool their resources to form consortiums to provide big loans in this sector. The investments made in this sector will help the macro- economy and very likely prove gainful for the banks as well.
Ashraf Ali Tarafdar
Segunbagicha
Dhaka
Banks' idle funds
FE Team | Published: November 02, 2007 00:00:00 | Updated: February 01, 2018 00:00:00
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