Banking sector situation is not as bad as made out to be: Muhith

Amidst growing concerns over Bangladesh’s banking sector, Finance Minister AMA Muhith says the situation is made out to be worse than it actually is.

“There is a lot of criticism about our banking sector. Yes…I won’t brush aside criticisms. We have had problems with a bank because of a director. But I don't see as much problem as it is said,” he told a pre-budget discussion on Monday.

Instability in the banking sector in past few years is a major concern for the government.

Commerce Minister Tofail Ahmed said recently they needed to keep an eye on the sector though Bangladesh was doing well in many other indicators.

Former Bangladesh Bank governor Mohammed Farashuddin recently said the disorder in the banking sector was overshadowing many achievements of the government.

Zahid Hussain, lead economist at the World Bank’s Dhaka office, is also worried about the situation in the banking sector. He has suggested strengthening supervision to stop corruption in the banks.

Several government and private banks have been struggling amid a cloud of loan scams and irregularities for some years. Things are at their worst at state-owned BASIC Bank and private Farmers Bank.

Farmers Bank, established by ruling Awami League leader Muhiuddin Khan Alamgir MP, put Bangladesh’s entire financial sector at risk, a government report said.

Muhith admitted that non-performing loan was a ‘big problem’ for the banking sector.

According to him, 11 percent of the loans disbursed by the banks are bad debts. The situation is worse in the government banks that have as much as 30 percent bad debts.

“It’s true that there are many problems in the government-run banks, but we should keep it in mind that the government needs to invest in risky places when necessary, which the private banks don’t do,” the minister said.

According to the latest data from the Bangladesh Bank, the banking sector has around Tk 1.25 trillion loans defaulted on. Also, credits to the tune of Tk 450 billion have been written off.

Muhith sat with a delegation of the Dhaka Chamber of Commerce and Industry led by their President Abul Kashem Khan.

The finance minister highlighted the sectors he is planning to prioritise in the budget for 2018-19 fiscal year.

He said the budget would be of Tk 4.6 trillion, with education, health and sanitation being prioritised like in previous years. 

Power, energy and communication sectors would also be prioritised. Social safety net sector would get a sizable allocation, he said.

“There won’t be anything new. The target for revenue collection will be 11 to 15 percent higher than it is in the budget for the current fiscal year.”

Muhith also said he would think about cutting corporate tax as demanded by the businesses.

According to him, Bangladesh would surpass the GDP growth target this fiscal year again. Remittance inflow would cross $15 billion after a drop in the last fiscal year and exports would grow by7 to 8 percent.

The finance minister claimed the rise in the pay of public servants has seen corruption drop.

“The corruption we are seeing now will not go away immediately. I assume it will take five to 10 more years for corruption to drop to a low,” he said.   

When the DCCI leaders demanded a cut in the interests on bank loans, he said Prime Minister Sheikh Hasina had already addressed the issue with the bank owners.

He said he was considering cutting interest on savings certificates.  

Family and pensioner savings certificates offer around 12.5 percent interest and are hugely popular with the people. 

The rate is much higher than the interest on bank deposits though the banks have raised interest rates on savings lately.