[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Roadmap for banking reforms: Implementation is key

Although the roadmap drawn up to reform the banking industry of Bangladesh may seem attractive on the surface, there are questions regarding its efficacy in ensuring good governance in the scam-hit sector.

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Roadmap for banking reforms: Implementation is key​

Although the roadmap drawn up to reform the banking industry of Bangladesh may seem attractive on the surface, there are questions regarding its efficacy in ensuring good governance in the scam-hit sector.

The Bangladesh Bank outlined 17 action plans under the roadmap released on February 4.

The initiative mainly aims to bring down the ratio of non-performing loans (NPLs) to below 8 percent and ensure good governance in the sector by June 2026.

The overall NPL ratio was 9 percent by the end of last year.

The state-run banks accounted for the bulk of the bad loans as 20.99 percent of their disbursed funds had soured by the end of 2023.

As such, the BB has included measures to reduce the NPL ratio of public banks to less than 10 percent within the deadline.

Although most of the action plans and policy reforms already exist while others were added in the Bank Company (Amendment) Act 2023, the governance in the sector is getting worse.

For example, the roadmap shows that the banking regulator will provide necessary instructions to prevent lenders from exceeding the single-borrower exposure limit.

However, the provision is not new as it has existed in the Bank Company Act for more than a decade. Still, exceeding the single-borrower exposure limit has become a regular practice in the banking industry.

Around 89 borrowers of four state-run banks, namely Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank, had exceeded the limit as of June last year, as per a central bank report.

Under the current single-borrower exposure limit, banks are allowed to disburse loans equal to 25 percent of their total capital to an individual client.

Against this backdrop, economists and financial experts said that implementing the existing policies is more important than introducing new ones.

Salehuddin Ahmed, a former central bank governor, recently said regulatory bodies are failing to adequately punish those who do not follow banking laws.

As per the first policy change included in the roadmap, banks are allowed to write off loans that remain in the "bad and loss" category for two years while it was three years previously.

The central bank expects that NPLs will be reduced by Tk 43,300 crore because of the policy change.

However, the fact is that when banks write off bad loans, the figure is hidden from the balance sheet but the liabilities still remain.

Usually, loans are written off only when they are 100 percent provisioned and there are no realistic prospects of recovery. These loans are transferred to the off-balance sheet records.

And although the practice of writing off loans is accepted worldwide, some analysts call it a "window dressing".

He criticised the policy change, saying it would not help reduce the volume of defaulted loans.

The banking sector's defaulted loans climbed 20.7 percent to Tk 145,633 crore in 2023.

A provision in the roadmap allowing weak banks to merge with financially sound ones was welcomed by experts. They, however, focused on visible actions to this effect.

"The central bank should restructure the board and management of the weak banks and conduct a comprehensive audit before allowing mergers," said Ahsan H Mansur, executive director of the Policy Research Institute.

Under the roadmap, the central bank toughened the rules for appointing both shareholder directors and independent directors by fixing age and educational requirements. The regulator also raised the allowance of independent directors.

Former central bank governor Ahmed said the central bank must have enough strength to tackle political interference and pressure from influential groups to implement the roadmap.

In a press briefing in January, BB Governor Abdur Rouf Talukder said the central bank's activities have never been influenced by outside forces.​

 

[Saif]

Lack of trust in financial sector adversely impacting economy

There is a lack of trust in the financial sector of Bangladesh, which is adversely impacting the country’s overall economy, according to economists at discussion.

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Lack of trust in financial sector adversely impacting economy​

Economists say

There is a lack of trust in the financial sector of Bangladesh, which is adversely impacting the country's overall economy, according to economists at discussion.

Against this backdrop, they urged the government and related regulatory bodies to ensure good governance and take punitive measures on all who disobey the guidelines.

These recommendations came during a panel discussion, styled "Transformation of the financial sector: Adapting to constraints", at the Muzaffar Ahmed Chowdhury Auditorium of Dhaka University yesterday.

The discussion was organised by the Economics Study Center in collaboration with the International Labour Organisation as a part of its three-day 5th Bangladesh Economics Summit 2024.

Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the domestic financial sector comprising banks, the stock market, bond market, and insurance sector has seen less development compared to that of neighbouring countries.

"The financial sector cannot support the real economy due to a lack of good governance," he added.

The economist also said people have lost trust in the financial sector, and that is adversely affecting the overall economy.

"There is a lot of talk about reforms in the banking sector," said Mansur, adding that it is expected that mergers will take place and non-performing loans will reduce but no steps have been taken to this end.

He informed that the actual amount of bad loans accounts for around 24-25 percent of the total loans disbursed. This includes loan repayments that are being held up until the dismissal of related court cases and loan write-offs.

The liabilities of the bad loans are ultimately borne by depositors and good borrowers, Mansur said.

The economist suggested ensuring institutional governance, saying that plans for the banking sector will have to be introduced with political willingness.

Salehuddin Ahmed, former governor of Bangladesh Bank, said everything is now going backwards as the laws and regulations are not being followed but there is no one to punish the offenders.

Firstly, borrowers had to pay 10 percent of their loan to reschedule it but now, they have to pay only 2 percent. If this continues, then influential borrowers will not repay their loans, Ahmed added.

He criticised the latest banking sector reform roadmap, saying it would allow banks to write off bad loans in two years whereas it was three years previously.

Ahmed also urged to bring good governance and accountability to the financial sector.

Lila Rashid, financial inclusion specialist at the Centre for Research and Development, said the financial technology sector lacks a level playing field.

For example, licenses for forming digital banks have been awarded to a particular group, she added.

Kanti Kumar Saha, CEO of Alliance Finance PLC, said there are several laws and regulations in the financial sector, but implementation remains absent.

In response to a query, the PRI's Mansur said the practice of mergers is accepted worldwide and although it is possible in Bangladesh, it could be difficult given the country's political environment.

He said that before any merger, the central bank should restructure the board and management of some weak banks and it will have to conduct a comprehensive audit of the merging firms.

The discussion was chaired by Selim Raihan, a professor of economics at the University of Dhaka.​

 

[Saif]

BB introduces currency swap with banks

The Bangladesh Bank has introduced currency swaps with banks for the first time, a move that will enable the country to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

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BB introduces currency swap with banks​

The move is designed to temporarily raise forex reserves

Photo: Star/File

The Bangladesh Bank has introduced currency swaps with banks for the first time, a move that will enable the country to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

Usually, the central bank has to buy the greenback if it needs to raise the reserve to meet the condition. Now, it may get foreign currencies from banks for a certain period in exchange for only interest.

A currency swap involves the exchange of interest -- and sometimes of principal -- in one currency for the same in another currency. Companies doing business abroad often use currency swaps to get more favourable loan rates in the local currency than if they borrowed money from a local bank.

A forex swap has two legs or stages: a near leg date and a far leg date.

On the near leg date, one swaps a currency for another at an agreed spot foreign exchange rate and agrees to swap the same currency back again on a future date (far leg date) at a forward foreign exchange rate.

For conventional commercial banks, the central bank said, the taka will be sold in exchange for approved foreign currencies at the spot rate at the near-leg.

At the far-leg, the deal will be settled by applying the same exchange rate with a swap point based on the interest rate differential considering the prevailing benchmark rate of foreign currencies. Here, the three-month term SOFR for US dollars and the policy rate of the BB for the taka will be applicable.


The secured overnight financing rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the Libor (London Inter-Bank Offered Rate).

The SOFR rate presently stands at 5.38 percent while the policy rate in Bangladesh is 8 percent, figures from the Federal Reserve of the US and the BB showed.

The treasury head of a private commercial bank said while the interest rate is flexible in currency swaps with other commercial banks, it is almost fixed in the case of the central bank.

"So, banks will analyse which one is more profitable."

For Shariah-based banks, at the near-leg, the taka will be sold in exchange for foreign currencies at the spot rate. At the far-leg, the deal will be settled by applying the same exchange rate, the BB said.

The swap deal will be executed within the counterparty limit to be set by the Forex Reserve and Treasury Management Department of the central bank.

Each deal will be in multiples of one million of foreign currency, starting from a minimum value of five million and equivalent taka with a tenure of seven days to 90 days.

The rollover may be allowed by applying the prevailing rates, the notice said.

"It seems that the central bank opened an alternative window to raise the foreign exchange reserve without buying dollars from commercial banks," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

According to the IMF's conditions, the central bank was supposed to keep a net forex reserve of $17.78 billion in December.

However, there was a $58 million shortfall despite the central bank buying over $300 million from several commercial banks.

The reserve must stand at $19.27 billion by next March and $20.11 billion by June as part of the loan programme. However, the net reserve is still below the targets.

Hussain says if a bank had excess or idle dollars, there was previously no provision to keep it in the central bank. So, they had no interest income from it.

"Now, an option has been created to keep those idle dollars with the central bank in exchange for interest if the banks do not need it."

On the other hand, if a bank has excess dollars but a shortage of the taka, it can raise its liquidity in the form of the local currency through a currency swap.

At present, many banks have no excess dollars. On top of that, the demand for the currency is high.

However, there are questions about whether banks will be interested in engaging in currency swaps with the central bank as they can only avail the official rate exchange rate, which is much lower than the actual market rate, according to Hussain.

Banks also have the option to go for currency swaps between themselves and the rate is market-driven.​

 

[Saif]

Govt to promote value-added products for post-LDC era

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md...

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Govt to promote value-added products for post-LDC era​

NBR chairman says

The government suspends an assistant commissioner of taxes (ACT) for allegedly helping taxpayers evade tax through forgery. Photo: NBR website.

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md Rahmatul Muneem said yesterday.

"The IT sector and car manufacturing sector benefited last year and more opportunities will be given in the future. The work of the government is to create the environment, but you have to implement it," he said.

Muneem made the comments while addressing as chief guest a pre-budget meeting, organised by the Chittagong Chamber of Commerce and Industry (CCCI) at the Bangabandhu Conference Hall of the World Trade Centre in Chattogram's Agrabad area.
He also said that the industries of the country must become self-sufficient and proficient in order to confront the obstacles that come with transitioning from LDC status to the developing country status.

To this end, he emphasised the need for industries to become capable of not only confronting tax and VAT challenges, but also various other obstacles in order to compete in the global market.

He added that the nation would be unable to overcome these challenges if industries which require assistance through tax and value added tax (VAT) rebates were not adequately supported.

He also urged to move into more advanced sectors, saying: "Now is the time to turn our attention to the shipbuilding sector instead of the shipbreaking industry. Bangladesh cannot be the destination of foreign waste."

The CCCI earlier submitted around 12 proposals for the NBR for consideration in the next national budget.

CCCI President Omar Hazzaz, who chaired the meeting, proposed to raise the tax-free income limit for individual taxpayers from Tk 3.5 lakh to Tk 4 lakh considering the current global situation and persistent inflation.

He also proposed to reduce VAT on different goods from 15 percent to 8 percent since businesses and the general public are suffering due to the dollar crisis and inflation.

Managing Director of BSRM Group Aameir Alihussain mentioned that businesses face long delays in getting refunds after paying advance tax and VAT, underlining that businesses urgently need such refunds since they are currently facing a liquidity crisis.

In his speech, Muneem said they were working to solve these problems.

NBR member Md Masud Sadik said some traders were misusing government benefits.

"The government has given duty exemption of Tk 750 crore on various food products in the past year but the benefits have not reached the people. They (traders) have kept the price high, showing various reasons," he said.

Leaders of different business bodies, including the Bangladesh Garment Manufacturers and Exporters Association, Real Estate and Housing Association of Bangladesh, Bangladesh Frozen Food Exporters Association, Shop Owners Association, Clearing and Forwarding Agents Association, Rubber Garden Owners Association, and others also spoke.​

 

[Saif]

Dollar, energy crises, NPL hold back growth

Businesspeople and economists said on Sunday that extortion, non-performing loans, the gas crisis, and dollar shortages were holding back the country’s private sector growth. They...

www.newagebd.net

Dollar, energy crises, NPL hold back growth​

Staff Correspondent | Published: 00:12, Feb 19,2024

Businesspeople and economists said on Sunday that extortion, non-performing loans, the gas crisis, and dollar shortages were holding back the country’s private sector growth.

They also urged the government for sustainable policy reforms and a long-term roadmap for achieving the country’s target of a trillion-dollar economy.

The Dhaka Chamber of Commerce and Industry organised the seminar on ‘Bi-annual economic state and future outlook of Bangladesh’s economy: private sector perspective’ at its auditorium in the capital.

DCCI former president Shams Mahmud, also Shasha Denims Limited managing director, said that the government had to ensure energy at an affordable price and uninterrupted gas supply to the industries to boost private sector investment in the country.

‘After LDC graduation, we must look into establishing import substitute industries to be self-sufficient,’ he said, proposing a rationalised taxation system and continued special support for cottage, micro, small, and medium enterprises.

He said that the dollar crisis had created an adverse impact on the country’s private sector for doing business.

Policy Research Institute senior economist Ashikur Rahman said that macroeconomic instability was not good for the private sector.

‘NPL always has a negative impact on businesses. So it is time to take a serious decision against NPL,’ he said, adding that the country’s tax-to-GDP ratio, which is hovering around 10 per cent, is not up to the expected level.

He also said that the government should take the initiative to check the decline of the country’s foreign currency reserve and ensure that inflation comes down.

Bangladesh Institute of Development Studies research director Mohammad Yunus said that sometimes extortion at the retail market becomes one of the main reasons behind rising inflation.

He asked why the business had to pay extra money to do business in the market.

DCCI president Ashraf Ahmed requested that the government lower corporate tax, complete the automation of the taxation system, increase the tax net, and reform supplementary duty and value-added tax to promote private sector growth.

‘As NPL has an impact on increasing some intermediary costs for the private sector, I suggest reducing NPL. Reducing the cost of doing business, uninterrupted energy supply at an affordable price, and logistic sector development will help the private sector re-investments,’ he added.

He also urged the government to reduce the cost of doing business, ease doing business, improve regulatory efficiency, install appropriate infrastructure, ensure energy security, improve logistics, and ensure access to finance for the private sector for the long-term growth target of achieving a trillion-dollar smart economy.

He noted that the private sector investment target was 27.4 per cent of GDP in FY2024, while it was 21.8 per cent in FY2023.

‘Required policies considering the LDC graduation will expedite private sector investment,’ the DCCI president added.

Speaking as chief guest, the economic affairs adviser to the prime minister, Mashiur Rahman, said that the country’s economy had experienced fundamental changes during the past decade, and the private sector had also flourished remarkably.

‘Policies should be formed considering the problems and prospects of the private sector,’ he added.

He stressed export diversification and value addition to export products and acknowledged that reforms were needed in the taxation system as there are still some problems and challenges.

‘We should also tap into the huge potential of the blue economy,’ Mashiur added.

Bangladesh Bank chief economist Md Habibur Rahman said that due to global geopolitical instability, the price of essentials had increased, and the central bank had already taken the necessary measures to tackle the situation.

‘Bangladesh Bank will introduce a Clawing Peg system to keep the exchange rate under control. The central bank has underscored a roadmap to bring NPL in the industrial sector down to 8 per cent within the next 2 years,’ he said.

He also said that the Bangladesh Bank would maintain contractionary monetary policy until inflation came down to 6 per cent.​

 

[Saif]

Foreign Loan: Repayment crosses $4b for first time

Foreign loan repayment, which was hovering around $3 billion since fiscal 2012-13, crossed the $4 billion-mark for the first time last fiscal year on the back of high interest payments and short-term loans in the power and energy sector.

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Foreign Loan: Repayment crosses $4b for first time​

Amount expected to soar in coming years

Foreign loan repayment, which was hovering around $3 billion since fiscal 2012-13, crossed the $4 billion-mark for the first time last fiscal year on the back of high interest payments and short-term loans in the power and energy sector.

In fiscal 2022-23, foreign loan repayment stood at $4.78 billion, up 32.8 percent year-on-year, according to the Economic Relations Division.

The repayment increased $1.18 billion from fiscal 2021-22. In previous years, the repayments increased between $100-$400 million.

Going forward, the repayments are expected to increase further because of exchange rate volatility and the possibility of LIBOR/SOFR and EURIBOR rates ticking up, the ERD said in its latest report.

Of the repayment amount last fiscal year, $2.67 billion was thanks to the government's loans and $2.11 billion was for the state-owned enterprises' borrowing.

Both the segment's loans increased by 32 percent, but the state-owned enterprises' increase is substantial as its total outstanding debt is only $8 billion. The government's total outstanding foreign loan is $62.4 billion.

As of June last year, the total public sector outstanding debt is $70.8 billion.

The state-owned enterprises took short-term loans in this fiscal year, whose interest rate is more than long-term loans, said finance ministry officials. As a result, the repayment amount went up.

"Even two years ago, the interest rate was below 1 percent on such loans. Now, it is more than 8 percent," they said.

Of the repayment amount, the interest payment was $1.3 billion, up 99.23 percent year-on-year, the ERD report showed.

The highest loan was repaid against short-term loans taken to import crude oil: $1.12 billion, which is an increase of 40 percent from the previous fiscal year.

The power sector's loan repayment increased by 27 percent to $679 million.

The government has paid $85 million for loans taken to purchase aircraft earlier, up 49 percent year-on-year increase.

However, the ratio of the government's external debt stock is 15.59 percent of the GDP while the threshold is 40 percent, indicating the foreign loan position is in the safe territory, the ERD report said.

The ratio of debt service to revenue and grant will cross 100 percent this fiscal year, said Zahid Hussain, former lead economist of the World Bank's Dhaka office, citing a recent report of the International Monetary Fund.

"It does not mean that there is no concern."

There are two main concerns now in the current context of historically low revenue collection and ongoing dollar crisis.

"The loan repayment pressure is still heavy and we can't see the pathway to get rid of the situation," he said, while calling for increasing the revenue collection and the foreign currency reserves.

Besides, the government should try to get low-cost foreign loans in the future, Hussain added.

The ERD report -- titled "Flow of External Resources" -- said few loans have recently been mobilised at variable interest rates.

"The interest rate risk is high when the variable interest rate-dominated debt portfolio exists," it added.

Though the report acknowledged the interest-related risks, it said all the other indicators are below the level of threshold.

"According to the present classification by the World Bank, Bangladesh is categorised as a 'less indebted' country."

Though the Bangladesh Bank has taken several initiatives, the foreign currency reserve has been declining in the last one and a half years.

As of February 14, foreign currency reserves stood at $19.9 billion.​

 

[Saif]

PM for doing business with India using taka, rupee

Prime Minister Sheikh Hasina today stressed the need for expanding business between Bangladesh and India using their own currencies

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PM for doing business with India using taka, rupee​

Photo: BSS

Prime Minister Sheikh Hasina today stressed the need for expanding business between Bangladesh and India using their own currencies.

"We can do our business through exchanges of Bangladeshi Taka and Indian Rupee. It has already started, but we have to expand it further so that we can increase our businesses," she said while Indian External Affairs Minister S Jaishankar paid a courtesy call on her.​

​

The meeting was held on the sidelines of the Munich Security Conference (MSC) 2024 at Hotel Bayerischer Hof this morning.
Foreign Minister Hasan Mahmud briefed journalists about the outcome of the meeting upon its completion.

Hasan said the prime minister and Jaishankar attached importance to doing business between the two friendly countries through their own currencies to reduce dependency on other currencies like the US dollar.

He said Bangladesh and India have excellent bilateral relations and it has elevated to another height under the leadership of the prime ministers of the two countries.

"The relations between the countries are getting stronger day by day," he said, adding that the two leaders discussed the issues during the meeting.

Quoting Jaishankar, Hasan said, "Our relations will further be closer in the days ahead."

Bangladesh Ambassador to Germany Md Mosharraf Hossain Bhuiyan and PM's Deputy Press Secretary Md Noorelahi Mina were present during the briefing.

Hasina arrived in Munich on February 15 on a three-day official visit to join the Munich Security Conference 2024.

Upon completion of the tour, she will leave tomorrow night and is scheduled to reach Dhaka on February 19.​

 

[Saif]

Titu seeks Japan’s cooperation to make ‘One Village, One Product’ successful

State Minister for Commerce Ahasanul Islam Titu has sought Japan’s cooperation to make the “One Village, One Product” programme a success. “The prime minister has declared ‘Handicrafts’ as the product of the year. The government is working to increase employment

thefinancialexpress.com.bd

Titu seeks Japan’s cooperation to make ‘One Village, One Product’ successful
UNB
Published :
Feb 19, 2024 21:00
Updated :
Feb 19, 2024 21:14

State Minister for Commerce Ahasanul Islam Titu has sought Japan’s cooperation to make the “One Village, One Product” programme a success.

“The prime minister has declared ‘Handicrafts’ as the product of the year. The government is working to increase employment and export goods through the ‘One Village, One Product’ programme. We look forward to Japan’s cooperation and experience to make this programme a success,” he said, according to a press release.

The state minister said this when Japanese Ambassador to Bangladesh Iwama Kiminori paid a courtesy call on him at the former’s office on Monday.

At the time, the Japanese ambassador appreciated the programme, assured cooperation, and said Japan wants to strengthen relations with Bangladesh.

“Japan is keen to work as a partner in Bangladesh’s development journey. We hope that Bangladesh will participate in the ‘World Expo 2025’ to be held in Japan next year,” he said.

Titu mentioned the friendly relations between Bangladesh and Japan and said, “We hope to extend all cooperation to expand trade and commerce between the two countries.”​

 

[Lulldapull]

I meet Bangladeshi here in Japan every now n then and they pretty shy and keep to themselves. They talk to the Nepali community here a lot more than they talk to us the handful of Turkish/ Irani/ Pakistani here.

 

[Saif]

I meet Bangladeshi here in Japan every now n then and they pretty shy and keep to themselves. They talk to the Nepali community here a lot more than they talk to us the handful of Turkish/ Irani/ Pakistani here.

In that case, they are Awami supporters. When I was in America, I used to feel comfortable with mixing Muslims from all over the world(including Indian Muslims).

 

[Lulldapull]

W

In that case, they are Awami supporters. When I was in America, I used to feel comfortable with mixing Muslims from all over the world(including Indian Muslims).

Whats Awami?

 

[Saif]

W

Whats Awami?

Awami means Awami League.