The amount of non-performing loans (NPLs) is likely to be much higher than that reported as the process does not fully take into account effects of scams and losses incurred by merchant banks due to the bursting of the stock price bubble, said a top economist at the unveiling of a book yesterday.
Other factors understating the true portfolio quality and problems in public and private banks are a lack of stringent regulatory standards, he said.
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Indeed, even accounting standards are not always up to the mark, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, in an article "Bangladesh's financial sector: The last 50 years" in the book "An economy on the move Bangladesh at fifty" published by Nymphea Publications.
Public Diplomacy Wing of the foreign affairs ministry is the co-publisher of the book unveiled at InterContinental Dhaka yesterday. Foreign Affairs Minister AK Abdul Momen launched the publication.
Mansur said, "Although the banking sector has had its share of success, there are several serious concerns that remain and are likely to intensify if they are unattended."
He said there were sharp differences in the performances of banks, especially between private and public banks, and increasingly also among private ones.
For example, he writes, as of September 2019, the gross NPL of private banks was 7.43 per cent but 31.5 per cent at state-owned commercial banks and 17.81 per cent at public specialised development banks.
Talking to The Daily Star yesterday, he said the total amount of classified loans in banks would be two to three times higher than the reported amount.
Mansur said there were important issues relating to the corporate governance of banks.
"Importantly, public banks are not within the purview of Bangladesh Bank. As such, there are serious concerns about the quality of the board and top management of these banks. Furthermore, their compliance with prudential regulations is weak," he said.
"The experience of the past few years has shown that the lack of autonomy of the central bank sometimes undermines the conduct of sound monetary policy and the granting of licences to new banks," Mansur continues.
The risks of political interventions in the functioning of the central bank must be averted to establish a healthy banking system, he added.
Apart from Mansur, PRI Vice-Chairman Sadiq Ahmed, State Minister for Planning Shamsul Alam, Executive Director of the Institute of Microfinance and Development Mustafa K Mujeri, Executive Director and CEO of the Center for Research Initiatives Neaz Mujeri, Executive Director of the South Asian Network on Economic Modeling (SANEM) Selim Raihan, PRI Chairman Zaidi Sattar, SANEM Chairman Bazlul H Khondker, Chairman of the Research and Policy Integration for Development (RAPID) Society Mohammad Abdur Razzaque, Chairman of Bangladesh Securities and Exchange Commission (BSEC) Shibli Rubayat-Ul-Islam, academic and researcher M Rokonuzzaman and PRI Director Sarwar Jahan also have articles in the book.
The book contains articles on a wide range of issues -- Bangladesh's development, national planning, agriculture, its achievement and challenges, growth of manufacturing and readymade garment and way forward, remittances, financial sector, ICT, urbanisation, poverty reduction and social security.
It highlights Bangladesh's advancement in various socio-economic areas with a focus on the future.
"The policy makers of Bangladesh can breathe a sigh of relief that it has now been able to put an end to stigma of once-being known as an international basket case. Bangladesh is now following the path of Asian miracle countries proving the doubters wrong," said the state minister for planning in his article.
However, he said, essentially there remains a few major challenges ahead -- the sustainability of economic transformation, the ease of doing business, an improved regulation framework for attracting foreign direct investments, institutional reforms, governance, climate change, and expanding fiscal space.
In his article on the manufacturing sector, the PRI vice-chairman said Bangladesh has made remarkable progress in the manufacturing sector.
"Nevertheless, there is a sizable unfinished agenda. First, the strong growth in RMG exports has not been repeated in any other manufacturing activity due to a policy dichotomy. The special facilities enjoyed by the RMG sector is not generally available to all exports," he said.
Consequently, while a large number of export items have emerged, they have not had comparable success. Some are struggling to survive while some have already exited. Even items that showed early promise, like leather and footwear, have failed to take off in the way that RMG had, he said.
"The RMG industry of Bangladesh is now at a crossroads. It is time to focus on Bangladesh, how Bangladesh can retain its comparative advantage and add to its success story," said Selim Raihan.