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Dhaka, Apr 7: The government decision to issue fresh banking licences
may destabilise the banking sector, and public deposits worth thousands
of crores of taka might be at stake, as the move would trigger unhealthy
competition among new banks.
Leading economists and money market experts expressed this view to The
Independent, strongly suggesting that Tk. 15,000 crore available with
the sponsors of the proposed 37 banks should be invested in productive
sectors.
Bangladesh Bank, on Wednesday, had provided licences to two new NRB banks and had said the rest of the licences would be awarded after scrutinising the 16 short-listed applications on Sunday.
Dr Mirza Azizul Islam, former finance adviser to the caretaker government, said that at present the deposit demand ratio was negative and time-deposit accounted for less than 3 per cent of all forms of deposit.
“So, when the inflation rate is more than 10 per cent, the real value of the deposit would erode further. Under the circumstance, the emergence of new banks would create an unhealthy competition in the banking sector and credit would be squeezed, due to the high cost of both deposit and credit,” he explained.
He also noted that after collecting deposits at a high rate, in an already saturated market, the banks would be compelled to go for risky investments, with the money raised from the general public.
Former central bank governor, Dr Salehuddin Ahmed, said the government decision would harm both banking and economy. "This is not a logical decision at all, given the present state of the banking sector," he said.
Economist Dr Debapriya Bhattacharya, of the Centre for Policy Dialogue, said that under the present circumstances, there was no need for new banks.
“Personally, I'm not of the opinion that there should not be any new bank. But, this is not the right time to set up one,” he said, citing three reasons for which providing permission for opening of new banks should not be prudent.
There is scarcity of liquidity and an overstressed portfolio in the banking sector, and there is a lot to be done in terms of oversight functioning, Dr Bhattacharya pointed out.
“The sponsors of new banks have Tk. 15,000 crore in hand. My question is why don’t they invest it in productive sectors?,” he said.
If investing in the industrial sector would get less return than in the banks, then there is a basic fundamental problem with the economy and that needs to be addressed, he said.
Economist Prof. MA Taslim believed that the government did not give much thought to the issue before finalising the decision to provide fresh banking licences, as this was done under political considerations.
“We all know that banks are scrambling for deposits and some banks are facing problems and many are even suggesting merger to overcome the situation. But the government is doing the opposite,” he said.
“In the limited space, more banks would create pressure on deposits and on the overheads of the existing banks. More professional bankers claiming fat salaries would be required for the new banks. And this would push up the overall cost of business, forcing a hike in the lending rates, which would ultimately create an adverse impact on the economy,” he added.
It is now an open secret that the government is providing the new banking licences under political considerations and the applications of those closed to the ruling alliance will be cleared.
Following are the names of the 16 banks, and their key sponsors, that have been short-listed for final approval.
Pharma Ltd, and Belhasa Accom JV Ltd; Self-employment Bank of Mahbuba Kabir, late National Professor Kabir Chowdhury, Prof. Abdul Latif, Prof. Shahin Mahbuba Kabir, Prof. Akhteruzzaman, and Dr Md. Iqbal Mahmud Chowdhury; and Korea-Bangla Bank of Engineer Enamul Haque.
Bangladesh Bank, on Wednesday, had provided licences to two new NRB banks and had said the rest of the licences would be awarded after scrutinising the 16 short-listed applications on Sunday.
Dr Mirza Azizul Islam, former finance adviser to the caretaker government, said that at present the deposit demand ratio was negative and time-deposit accounted for less than 3 per cent of all forms of deposit.
“So, when the inflation rate is more than 10 per cent, the real value of the deposit would erode further. Under the circumstance, the emergence of new banks would create an unhealthy competition in the banking sector and credit would be squeezed, due to the high cost of both deposit and credit,” he explained.
He also noted that after collecting deposits at a high rate, in an already saturated market, the banks would be compelled to go for risky investments, with the money raised from the general public.
Former central bank governor, Dr Salehuddin Ahmed, said the government decision would harm both banking and economy. "This is not a logical decision at all, given the present state of the banking sector," he said.
Economist Dr Debapriya Bhattacharya, of the Centre for Policy Dialogue, said that under the present circumstances, there was no need for new banks.
“Personally, I'm not of the opinion that there should not be any new bank. But, this is not the right time to set up one,” he said, citing three reasons for which providing permission for opening of new banks should not be prudent.
There is scarcity of liquidity and an overstressed portfolio in the banking sector, and there is a lot to be done in terms of oversight functioning, Dr Bhattacharya pointed out.
“The sponsors of new banks have Tk. 15,000 crore in hand. My question is why don’t they invest it in productive sectors?,” he said.
If investing in the industrial sector would get less return than in the banks, then there is a basic fundamental problem with the economy and that needs to be addressed, he said.
Economist Prof. MA Taslim believed that the government did not give much thought to the issue before finalising the decision to provide fresh banking licences, as this was done under political considerations.
“We all know that banks are scrambling for deposits and some banks are facing problems and many are even suggesting merger to overcome the situation. But the government is doing the opposite,” he said.
“In the limited space, more banks would create pressure on deposits and on the overheads of the existing banks. More professional bankers claiming fat salaries would be required for the new banks. And this would push up the overall cost of business, forcing a hike in the lending rates, which would ultimately create an adverse impact on the economy,” he added.
It is now an open secret that the government is providing the new banking licences under political considerations and the applications of those closed to the ruling alliance will be cleared.
Following are the names of the 16 banks, and their key sponsors, that have been short-listed for final approval.
Pharma Ltd, and Belhasa Accom JV Ltd; Self-employment Bank of Mahbuba Kabir, late National Professor Kabir Chowdhury, Prof. Abdul Latif, Prof. Shahin Mahbuba Kabir, Prof. Akhteruzzaman, and Dr Md. Iqbal Mahmud Chowdhury; and Korea-Bangla Bank of Engineer Enamul Haque.
Posted in: Bangladeshi News
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