[🇧🇩] Banking System in Bangladesh

[Saif]

Internet outage, curfew: Default loans to soar, banks’ profit to dip

Bankers are dreading a big drop in their profits as their defaulted loans are likely to increase further due to the curfew and the five-day internet blackout.

www.thedailystar.net

Internet outage, curfew: Default loans to soar, banks' profit to dip

ILLUSTRATION: REHNUMA PROSHOON

Bankers are dreading a big drop in their profits as their defaulted loans are likely to increase further due to the curfew and the five-day internet blackout.

The defaulted loans are likely to increase further as business people are suffering due to the ongoing unrest, said Naser Ezaz Bijoy, chief executive officer (CEO) of Standard Chartered Bangladesh.

At the end of March, total defaulted loans stood at a record Tk 182,295 crore, which is 11.10 percent of total disbursed credit, as per the latest published data of the central bank.

However, the actual volume of bad loans is at least three times the central bank figure, according to industry insiders.

Inflation may also increase in the coming days, Bijoy said.

Average inflation overshot the government's target of 7.5 percent in fiscal 2023-24; it stood at 9.73 percent.

"Not only was infrastructure damaged due to the unrest, but it also damaged the country's image -- the country will face a confidence crisis with investors," Bijoy said, adding that the priority now should be to bring the situation back to normal.

The bad loans will increase further as some business people have lost their capacity to repay the bank loans, said Anis A Khan, the former chairman of the Association of Bankers, Bangladesh Ltd (ABB), a platform of banks' chief executive officers and managing directors.

Already, some export orders of the garment sector have been cancelled amid the weeklong unrest, he said.

Banks' profitability will be impact adversely when they will have to keep higher provisioning for the higher bad loans, said Khan, also the former MD of Mutual Trust Bank.

There will be multiple effects on the banking sector and the overall economy because of the ongoing unrest, he said, adding that foreign investors will lose their trust in the country.

"It will be very difficult to rebuild the trust of foreign investors."

The country's economic capacity will be reduced because of infrastructural damage.

"There will be a need for incentive packages for business people but the government is facing a cash crisis of its own. So the overall economic situation is not so good," Khan added.

Borrowers failed to repay the bank loans and other payments amid the internet blackout and curfew, which will adversely affect the banking sector alongside the bank's profitability, said Mohammad Ali, managing director of Pubali Bank.

Last week, Bangladesh Bank instructed banks and non-bank financial institutions (NBFIS) to refrain from imposing fees or interest on delayed repayment of loan and saving scheme instalments and credit card bills between July 18 and July 25 if they clear their dues by the end of this month.

Banking services were stopped from 9 pm on July 18 for the countrywide internet blackout. From July 24, banking services were resumed on a limited scale, with many banks unable to conduct foreign transactions because of the slow internet.

"There is a lot of uncertainty regarding the economic situation in the coming days because of the recent unrest," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

There will be a double blow to the economy compared with the Covid-19 pandemic period.

"One will be for the internet shutdown and the other will be for the nationwide curfew. This may adversely impact the country's exports and imports," he added.​

 

[Saif]

Monetary policy faces fresh challenges

The latest monetary policy, declared two weeks ago, seeks to keep the growth of domestic credit flow at a moderate level during the first half of the current fiscal year (FY25). It wants to keep the growth of private credit unchanged while allowing the public sector credit grow to a certain extent

thefinancialexpress.com.bd

Depositors losing trust in banks
SYED FATTAHUL ALIM
Published :
Jul 28, 2024 21:52
Updated :
Jul 28, 2024 21:52

Of the many vulnerabilities that the country's banking sector is exposed to, its acute liquidity crisis is one. Tightening of money supply as part of the central bank's contractionary monetary policy, crisis in the forex market, slow pace of loan recovery, rising amount of bad loans, purchase of government bonds and securities by people and so on are the commonly discussed reasons for liquidity crunch in the banks. But over and above all these issues, there is yet another element that has factored in to deepen the bank's liquidity crisis. It is that the members of the public seem to have lost their interest in keeping their money in banks. As a result, banks are being forced to borrow money from the central bank to carry out their day-to-day business. The widespread violence and destruction that shook the nation in the wake of the students' movement for quota provision in government service has again been instrumental in making the public distrustful of the banking service. For it is during time of social unrest and crisis that people need money most to meet emergencies. But the complete internet shutdown for five consecutive days from July 19 to July 23, brought banking transaction to a complete halt. As the internet blackout came without any prior notice, so did the shutdown in the banking service.

To the members of the public, it was totally irresponsible on the part of the banks. Even the ATM booths went dysfunctional. But the banks had nothing to do either as the internet service was not under their control. The enforcement of curfew by the government to restore public order made matter worse. Nothing like this happened within the living memory of many who are below 50. Small wonder that there was a desperate rush at the banks and ATM booths on July 24, when the internet service hesitantly returned. It could be learnt that to meet the demands of some 30 cash hungry commercial banks, the Bangladesh Bank (BB), lent over Tk255 billion in cash to them. The commercial banks conducted their normal banking service with this borrowed money. Why did the banks have to turn to the BB for cash? The simple answer is that they did not have enough cash in their vaults to meet the demands of their depositors. People keep their money in banks for convenience and safety. But when the banks fail to serve them in times of need, let alone during serious emergencies, the public might then ask, what is the use of keeping their money in banks?

So, massive borrowing from the central bank to carry out normal banking is not a healthy sign for the banking sector. Neither is it safe for the central bank to continue doing so. For the central bank at a stage will be forced to print money against the advice of the International Monetary Fund (IMF) to help the commercial banks operate. The central bank has reportedly been doing so already to the detriment of its own policy of keeping money supply under control. But high-octane newly printed money will only defeat that purpose. It is indeed a recipe for disaster as continuation of this practice could pave the way for hyperinflation, a situation that the banking regulator must avoid under any circumstances. According to reports, on June 20 last, the bank notes issued by the central bank in the country was worth over Tk3.275 trillion. This was the highest number of bank notes ever issued in the country. Worse yet, the overwhelming portion, about 95 per cent, of the bank notes are circulating outside the banking system.

Obviously, the latest disruption in the banking service has further damaged public trust in the banks. The umpteen cases of looting of banks in connivance with top bank executives including the directors of private banks and failure, in most cases, of the banking regulator and the government to hold those looters and bank directors to account, has only contributed to further erosion of the public's trust in the banking system. The banking regulator has not been able to exercise its authority to put an end to the culture of inside-robbery in the banking sector, not to mention the pervasive culture of delinquency by the holders of non-performing loan accounts. How long are the common people going to stand this free-for-all in the banking sector? Some people are becoming billionaires not by doing any business, but by just looting public money kept in the banks! The common depositors cannot be blamed if they decide to withdraw their money from banks. It is, as it were, a return to the pre-banking era.

This does not simply pose a mortal risk to the banks alone. It also poses a danger to society itself. If the common depositors turn their back on the banking system, where are they going to save their money? By keeping it in their own homes? But that is yet another recipe for disaster because it will be an open invitation to robbers and thieves. The matter is going far beyond the jurisdiction of the banking regulator.

To make the matter worse, many expatriate workers reportedly were campaigning during internet disruptions against sending their remittance through the banking channel. If true, that's real bad news not only for the banking sector, but also for the country's foreign exchange reserves. After the very low record of remittance receipt in March this year, which was below two billion (actually, US$1.99billion plus), the highest ever record of remittance receipt in the last 47 months was in June at US$2.54 billion plus. But till July 24, the receipt recorded was a mere US$1.5 billion. Will the situation improve with resumption of the internet service?

Let's keep our fingers crossed that things may improve soon.​

 

[Saif]

Banks asked to join BB intranet

The Bangladesh Bank (BB) is trying to develop its own full-fledged banking-network system to prevent service disruptions during internet outages, officials and bankers said. As part of the plan, the central bank has initially developed an intranet and is asking commercial banks, financial institut

thefinancialexpress.com.bd

Banks asked to join BB intranet
Smooth services during internet disruption
FE REPORT
Published :
Aug 02, 2024 00:12
Updated :
Aug 02, 2024 00:12

The Bangladesh Bank (BB) is trying to develop its own full-fledged banking-network system to prevent service disruptions during internet outages, officials and bankers said.
As part of the plan, the central bank has initially developed an intranet and is asking commercial banks, financial institutions and mobile financial services to join it.

This would allow them to run the services even if internet communications are completely cut off.

BB Governor Abdur Rouf Talukder made the call at a meeting with top executives of several commercial banks on Thursday, according to meeting sources.

The meeting was held to assess the damage to the banking sector caused by recent violence following student protests over job quotas.

Bankers reported physical damage and mentioned the five-day nationwide internet outage that severely disrupted banking operations across the country.

Seeking anonymity, a BB official who attended the meeting said the central bank has developed a separate IT infrastructure called an intranet. Some banks have already connected to this system and were able to serve customers during the internet shutdown.

At the meeting, the central bank asked all banks, MFS providers and financial institutions to connect to the intranet to ensure uninterrupted service, the official said.

The Internet is a global collection of computer networks. It is an open network, accessible to anyone with a device and an internet connection.

In contrast, the intranet is a closed online network, only accessible to company employees. Employees use some form of login to access the company intranet.

Contacted, Selim RF Hussain, chairman of the Association of Bankers Bangladesh Limited (ABB) and managing director and chief executive officer of BRAC Bank, said the country's banking system depends heavily on the internet for online services.

The recent nationwide internet shutdown severely affected banking operations, he said. The importance of a separate infrastructure for the banking industry came up at the meeting.

He said the central bank also shared its plan for a separate communications infrastructure that will be different from the public internet.​

 

[Saif]

Bangladesh Bank discusses 24/7 banking without internet

Bangladesh Bank has initiated discussions on how to keep banking services operational around the clock without relying on the internet. The discussions took place during a meeting between the managing directors (MDs) of about a dozen banks and Bangladesh Bank Governor Abdur Rouf Talukder. During

thefinancialexpress.com.bd

Bangladesh Bank discusses 24/7 banking without internet
FE ONLINE DESK
Published :
Aug 01, 2024 22:13
Updated :
Aug 01, 2024 22:13

Bangladesh Bank has initiated discussions on how to keep banking services operational around the clock without relying on the internet.
The discussions took place during a meeting between the managing directors (MDs) of about a dozen banks and Bangladesh Bank Governor Abdur Rouf Talukder.

During the meeting, the governor inquired about the losses and casualties in the banking sector amid the recent unrest.

It was then reported on behalf of the MDs that four employees from Dutch-Bangla Bank and Standard Chartered Bank were killed, and some ATM booths and branches were damaged.

The MDs also said that while bank branches were closed, ATMs remained operational. However, the internet shutdown disrupted online banking services.

The central bank then proposed an alternative system to keep banking services running without internet, and talks on this followed.

MDs from Sonali Bank, Dutch-Bangla Bank, The City Bank, Eastern Bank, Mutual Trust Bank, BRAC Bank, Bank Asia, Prime Bank, and Trust Bank attended the meeting.​

 

[Saif]

Crisis in banks deeper than anyone could imagine

Experts and businesspeople yesterday urged the newly formed interim government to adopt urgent measures to ensure good governance in the banking sector, saying that the crisis in financial institutions is much deeper than anyone could imagine.

www.thedailystar.net

Crisis in banks deeper than anyone could imagine
Experts call for urgent measures to ensure good governance

Experts and businesspeople yesterday urged the newly formed interim government to adopt urgent measures to ensure good governance in the banking sector, saying that the crisis in financial institutions is much deeper than anyone could imagine.

They also demanded punishment for those involved in financial crimes in banks and financial institutions.

"The banking sector has become fragile over the past 15 years during the rule of Sheikh Hasina-led government. The situation is even worse than one can imagine," said Selim RF Hussain, chairman of the Association of Bankers, Bangladesh.

That fragile state is illustrated by the amount of non-performing loans in the sector, which hit Tk 182,000 crore in March this year, up from around Tk 22,000 crore in 2009.

"You see the names of some banks in the newspaper [for corruption]. But many are yet to be unveiled," Hussain added.

Hussain made the remarks at a dialogue organised by the Centre for Policy Dialogue (CPD) at the Lakeshore Hotel in Dhaka to discuss and address the challenges facing the interim government.

It included representatives from civil society, economists, bankers, entrepreneurs and students.

After restoring law and order, the priority should be focusing on the banking sector, Hussain said.

"The interim government should revive the central bank and I think this has already started with the appointment of a new governor."

The banker also congratulated protesting students, saying: "We now have freedom of speech. We did not have it in the last 14-15 years."

Hussain, also managing director and chief executive officer of BRAC Bank, then criticised bureaucratic tangles in the system.

Shams Mahmud, director of the Bangladesh Garment Manufacturers and Exporters Association, demanded stern action against corrupt directors of banks.

Accounts belonging to directors of scam-hit banks should be frozen and th
He also said it is important to prepare white papers to address data anomalies, especially in light of Bangladesh's impending graduation from least developed country status in 2026.

"There are major mismatches in the data based on which economic indicators were calculated. So, a white paper should be formulated on the actual economic scenario. Then we can have a vote. If a majority agrees, LDC graduation can be delayed by 10 to 15 years," he added.

Mahmud also labelled former National Board of Revenue Chairman Abu Hena Md Rahmatul Muneem as the leader of corruption, saying he had destroyed the tax system.

The government removed Muneem from his post yesterday.

Inadequate revenue collection, slow pace of implementation under the Annual Development Programme, and significant government borrowing from the banking sector have squeezed the country's economy, according to Fahmida Khatun, executive director of the CPD.

"Hikes in commodity prices, rising default loans and a liquidity crisis in the banking sector, slow export earnings, slow flow of remittance, stagnation in private sector investment and other problems have to be resolved quickly," she said.

To boost the economy, initiatives must be taken to solve the problems plaguing the power and energy sector. The deterioration of foreign exchange reserves, the declining trend of imports, and the massive devaluation of the taka must also be addressed, Fahmida added.

Another issue is that a large portion of the youth remain unemployed due to a lack of employment opportunities stemming from bribery and corruption, unreasonable job expectations, financial constraints or because they are waiting to land government jobs.

AKM Fahim Mashroor, chief executive officer of Bdjobs.com, said the government had violated civil rights by spying through digital devices over the past 15 years.

"In an independent country, why am I not able to use technology freely?" he questioned.

He emphasised the disclosure of all types of software used to violate human rights and civil rights, adding: "A white paper is required to explain how civil and human rights have been curtailed."

He further mentioned that the entire banking sector had been tailored to support corporate entities, depriving small and medium enterprises.

Legal and constitutional reforms to prevent the return of injustice, corruption, and authoritarianism were sought by Badiul Alam Majumdar, secretary at SHUJAN: Citizens for Good Governance.

He said three crimes occurred during the past government's tenure: crimes against humanity, criminal offences, and financial crimes. He added that the government should be given the chance to defend its actions in a fair trial.

Majumdar also lamented the use of law enforcement as a tool of the ruling party, he said.

One of the coordinators of the Anti-Discrimination Movement, Nusrat Tabbassum, said the interim government should reform law enforcement agencies which were destroyed by the past government.

She further said the interim government should work to restore the country's reputation, which was lost when the government imposed a five-day internet blackout in mid-July to quell protests that left more than 500 people dead as of August 7.

Mushtaque Raza Chowdhury, convenor at Bangladesh Health Watch, said the interim government should form a health commission to make a roadmap and look into existing healthcare services.

Through this commission, it can leave a legacy for future governments, he said.

Prof Mustafizur Rahman, a distinguished fellow at the CPD, demanded justice for recent injustices and loss of lives.

"We need a platform or framework with students and general people. They will work as guarantors of the expected reforms, which help an inclusive society," he said.

"The country has fallen into a vicious cycle. We have deviated from economic progress due to high inflation, low investment and anarchy in the banking sector."

In the last 53 years, Bangladesh has overcome many first-generation challenges. But we still have not overcome second-generation challenges, he added.​