Weak surveillance system and structural problems have led the country’s banking sector to long-term risks which will ultimately lower the rate of the growth of gross domestic product, said Unnayan Onneshan, a local think tank, in its monthly economic updates for December.
It said the decline in the rate of growth in credit would affect the linkage between expansion of credit and growth in investment and consequentially slide the growth of the GDP.
The situation in the banking sector has been deteriorating in terms of growth and disbursement of credit and risk management, lowering the rate of growth of the economy, it said.
The think tank observed that the decade-long policy of liberalisation in the banking sector has failed to lessen the rate of interest, spread between deposit and lending, and promote financial inclusion.
The weak surveillance system has led to a number of problems including scams and increased defaults on loans, it said.
The banking sector is plagued with severe structural rigidities, highlighted by indicators such as non-performing loans, low returns on asset and equity and the situation has continued to deteriorate.
The achievement of government-targeted 7.2 per cent rate of growth in GDP for the fiscal year 2013-14 requires rate of investment to rise at 32.0 per cent of the GDP.
Referring to the public and private sector credit, the research organisation stated that domestic credits recorded a lesser increase of 11.52 per cent at the end of September 2013 against the increase of 17.72 per cent 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 was 10.18 per cent, representing a 5.32 percentage point gap as the target in the monetary policy statement was set at 15.5 per cent.
The research organisation pointed out that the disbursement of industrial term loan stood at Tk 8,880.79 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 8,657.887 crore in the second quarter of the current FY 2013-14 with a negative growth rate of 2.51 per cent,’ it predicted.
The disbursement of the agricultural credit stood negative at 5.4 per cent in October 2013, compared to the positive growth rate of 143.2 per cent in September, 2013. At the current rate, agricultural credit disbursement might decline to Tk 1,007.36 crore in November, 2013, said the UO.
Besides the large-scale scams, bank’s risk management has weakened as the non-performing loans have increased to 3.91 percentage point in 2012 from 6.12 in 2011.
The overall returns on assets that measure the efficiency of the management in generation of earning to assets stood at 0.60 per cent in 2012 compared to 1.3 per cent in 2011. If these trends continue, overall ROA in the banking sector might decrease to 0.55 per cent in 2013.
The returns on equity, the amount of net income returned as a percentage of shareholders equity, reduced by 6.5 percentage points to reach at 7.8 per cent in 2012, from 14.3 per cent in 2011.
Referring to the financial inclusion, the UO said that banks’ branches in rural areas decreased to 57.20 per cent in December 2012 from 57.94 per cent in February 2008 and the share of branches in urban areas increased to 42.80 per cent from 42.06 per cent during the same period.
The foreign banks operating in the country were yet to establish any branch in rural areas as of December 2012, it also said.
The UO recommended that the government should improve supervision and regulatory capacity of the central bank and streamline the enforcement of prudential guidelines.
-With New Age input
