Think-tank report reveals deteriorating banking situation in Bangladesh

DHAkA, Dec. 21 (NsNewsWire) — The Unnayan Onneshan, an independent multidisciplinary think-tank, in its current monthly economic update reveals that the situation of banking sector has been deteriorating in terms of growth and disbursement of credit and risk management, lowering the rate of growth of the economy.

The think tank also observes that the decade-long policy of liberalisation in the sector has failed to lessen the rate of interest, its spread between deposit and lending, and promote financial inclusion while the weak surveillance system has led to a number of problems, including scams and increased defaults of loans.

As regards risk-management, the sector is plagued with severe structural rigidities, highlighted by indicators such as non-performing loans (NPL), low returns on asset and equity and the situation has continued to deteriorate.

Pointing on the linkage between expansion of credit and growth in investment, the Unnayan Onneshan notes that decline in the rate of growth in credit will drag down

investment and consequentially slide down the expansion of the gross domestic product (GDP). The achievement of government-targeted 7.2 percent rate of growth in GDP for FY 2013-14 requires rate of investment to rise at 32.0 percent of GDP.

Referring to the public and private sector credit, the research organisation states that domestic credits recorded a lesser increase of 11.52 percent at the end of September 2013 against the increase of 17.72 percent in corresponding period of the last year.

The rate of growth of credit disbursement to the private sector in July to September, 2013 -14 over July to September, 2012-13 is 10.18 percent, representing a 5.32 percentage point gap as the target in the monetary policy statement (MPS) was set at 15.5 percent.

The research organisation points out that the disbursement of industrial term loan stood at Tk. 8880.79 crore in the first quarter of the current FY 2013-14, which is the lowest among the last five quarters. If the trend remains as usual, the disbursement might decline to Tk. 8657.887 crore in the second quarter of the current FY 2013-14 with a negative growth rate of 2.51 percent.

The disbursement of the agricultural credit stood negative at 5.4 percent in October 2013, compared to the positive growth rate of 143.2 percent in September, 2013. At the current rate, agricultural credit disbursement might decline to Tk. 1007.36 crore in November, 2013, says the Unnayan Onneshan.

Besides the large scale scams, the risk management has weakened, observes the Unnayan Onneshan. For example, the non-performing loans have increased to 3.91 percentage point in 2012 from 6.12 in 2011. The overall return on assets (ROA) that measures the efficiency of the management in generation of earning to assets stood at 0.60 percent in 2012 compared to 1.3 percent in 2011. If these trends continue, overall ROA in the banking sector might decrease to 0.55 percent in 2013.

The return on equity (ROE), the amount of net income returned as a percentage of shareholders equity, reduced by 6.5 percentage points to reach at 7.8 percent in 2012, from 14.3 percent in 2011.

Referring to the financial inclusion, the Unnayan Onneshan states that branches in rural areas decreased to 57.20 percent in December 2012 from 57.94 in February 2008 and the share of branches in urban areas increased to 42.80 percent from 42.06 percent during the same period. The foreign banks have not yet established any branch in rural areas as of December 2012.

The Unnayan Onneshan recommends for improvement in supervision and regulatory capacity of the central bank and streamlining of enforcement of prudential guidelines.