Defaulted loans in the country’s banking sector are rising because of scams in the state-owned banks that gave no scope of cutting the interest rate, stopping the falling private investment and flight of capital. A Bangladesh Bank report submitted last month to a parliamentary standing committee admitted the fact while focusing on the hamstrung banking sector and its impact on the overall economy.
‘The high interest rate is a result of the soaring cost of fund,’ said the BB in its report to the parliamentary standing committee on the ministry of finance.
The report added that the central bank could not reduce the interest rate despite efforts because of the rising default loans on the back of the unprecedented swindling of funds in the state-owned banks.
Sonali Bank and BASIC Bank had swindling of funds worth around Tk 7,000 crore which became classified loans during the last two years.
The BB data showed that the classified loans soared to Tk 48,172.16 crore as of March 31, 2014 from Tk 40,583.01 crore as of December 31, 2013.
The default loans in the banking sector increased by Tk 7,589.15 crore in the first three months of this year despite the BB’s relaxed policy on loan rescheduling on the ground of pre-polls political unrest.
The admission by the BB would give vital clues to the government policy makers who are offering incentives to push up the private investment and curb the growing capital flight to second home programmes in Malaysia, the United Arab Emirates and Canada.
But there is no improvement in the private sector investment as it hit a 7-year low at 21.40 per cent in the just concluded FY2013-14, from 21.70 per cent in the previous fiscal year.
Economists said incentives offered by the government could not encourage the businessmen to go for new investment because of high cost of funds amid gas crisis, land shortage and infrastructural shortcomings.
They noted that it was essential to lift up the falling private sector investment to push up the growth over seven per cent after the gross domestic products stuck at an average 6 per cent in the last one decade.
Bangladesh Institute of Development Studies research director Zaid Bakth said the overall banking sector faced critical time following series of burglary in the state-owned commercial banks.
Expectation of a better economic outcome including new investment without prudent performance by the banking sector was a foolish idea, he said.
There is a relation between the dearth in investment and the capital flight as it was reported that 2,850 Bangladeshis had sought the ‘My Second Home Programme’ in Malaysia
sending huge amount of foreign currencies in violation of the law during the last one decade.
The Swiss National Bank in its annual report released a few days ago said that deposits by Bangladeshis in Swiss banks rose to 62 per cent to Tk 3,236 crore in 2013 from Tk 1,991 crore in 2012.
Capital flight was posing a grave threat for the economy, said Centre for Policy Dialogue distinguished fellow Debapriya Bhattacharya.
He said the irony was that the country was witnessing capital flight when it badly needed investment in foreign currencies.
-With New Age input
