Banking scams threat to growth potential

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Offline Monir Hossan

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Banking scams threat to growth potential
« on: May 18, 2018, 04:42:50 PM »
Bangladesh's graft-ridden banking sector is probably posing the biggest challenge to the country's growth potential, a leading chamber said yesterday.

“The corruption-ridden banking sector is perhaps the biggest downside risk now, which will call for strict vigilance by the central bank to bring discipline to the sector,” the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) said.

The oldest chamber in the country blamed the existing banking system for creating inequality in the country and called for reforms. The MCCI made the observations in its January-March review of the economic situation.

The banking sector is currently going through choppy waters because of rising loan irregularities and deteriorating corporate governance, it said.

In April, the finance ministry, under pressure from directors of private banks, undid the tight monetary stance announced in January for the second half of 2017-18, undermining the central bank's independence and credibility.

The banks' cash reserve requirement, which is a specified minimum fraction of the total deposits that banks must hold as reserves either in cash or as deposits with the central bank, was cut by one percentage point and set at 5.5 percent.

At the time, the Centre for Policy Dialogue said the decision to slash the CRR is likely to encourage the poorly performing private banks to continue with their business-as-usual practices and lend more aggressively and indiscriminately, which would also raise the risk of an increase in classified loans.

At the end of December last year, the overall non-performing loan ratio in the banking sector stood at 10.70 percent, up from 10.10 percent six months earlier.

The MCCI review said Bangladesh's economy is progressing well, but below its true potential.

Inadequate infrastructure and lack of investor confidence in the economy discourage making fresh investment and shortage of power and energy are now major impediments to the growth of the economy.

The review said there is no alternative to raising the level of investment if Bangladesh is to attain the status of a middle income country by 2021.

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Mohammad Monir Hossan
Senior Assistant Director (Division of Research)