Bangladesh Bank (BB) Deputy Governor Mr. Shitangshu Kumar Sur Chowdhury has said the central bank has allowed borrowing funds from foreign lenders to cut interest rate to stimulate economy. Despite our repeated approach, banks are still charging high rates- not conducive to the growth.
"Interest rate should be reduced further to support private sector growth and we are pressing banks to cut their lending rates as they hold excess funds in their cash vaults, he said noting that the high lending rate increases the cost of business and discourage entrepreneurs to invest further.
The central bank top official was talking with The Daily Observer and expressing his views on some burning issues like high interest rate, foreign currency borrowing by corporate bodies raised by top bankers of some commercial banks already published in the daily under the headline "Top Bankers Talk With The Daily Observer".
"We have allowed corporate bodies to borrow foreign currency loans as banks do not pay them loans at fair rates. This has already produced good results", deputy governor of Bangladesh Bank said.
Driven by high lending rates, most private and foreign banks earn hefty profits every year when their contribution to the economy once was questionable.
But the situation has been changed now thanks to the central bank's inclusive growth strategy, he said.
Shitangshu Kumar Sur Chowdhury who is popularly known as S.K Sur Chowdhury said Bangladesh Bank remains vigil round the clock to maintain stability of growth and ensure financial stability. Because, vulnerabilities in the financial system could complicate the smooth implementation of monetary policy, limit the policy choices in response to external shocks, and weaken monetary transmission.
"Maintaining financial sector stability through remedial measures to address vulnerabilities and manage crises is crucial and very challenging task for a central bank like the BB. We are now working to assess the recent reform measures on the real sector for ensuring inclusive and stable growth in the economy", he said.
Mr. Shitangshu Kumar Sur Chowdhury is performing his responsibilities as a Deputy Governor has over 33 years of extensive and versatile central banking experience in managing critical supervisory issues of the country.
Before this position he was in a key position as Executive Director in the Supervision of banks of the country. He has been playing vital roles in the development process in the fields of agriculture financing and financial stability in Asia pacific region.
He is the chairman of SEANZA banking supervising Forum and also chairman of the Bangkok based regional agricultural forum APRACA-Asia pacific Rural and Agricultural Cooperation.
The reforms that have taken place over the past two decades helped the Bangladesh Bank to evolve to a stronger position compared to the past. These reforms enabled the central bank to govern the financial sector in a more focused and objective manner.
High lending rate of banks remained a hot topic in banking industry since long as it has squeezed credit flow to the private sector, the driver of the economy. Under the shed of market economy, Bangladesh Bank has asked banks to keep spread within a limit. But many banks do not follow this instruction.
Banks in general are free to charge/fix their deposit and lending rate. Cap on rate of interest on lending in all sectors other than pre-shipment export credit (7%) and agricultural loans (13%) have recently been withdrawn.
"As some banks are suffering problems with huge excess liquidity. Now they can finance many potential projects at lower rates. We are trying to cut the rate further to stimulate the economy", S.K. Sur Cowdhury said.
He said the central bank has put more importance to increase the quality of assets and efficiency of banks. Due to increasing default risks of loans, the classification and provisioning system has been revised several times and made it more stringent.
" Still our banking system is plaguing with a huge amount of classified loans. But the volume has began to decline. So it is needed to maintain a standard asset quality and so need to follow related prudential regulation", Chowdhury said.
The banking industry in Bangladesh has flourished over the years, making double-digit profit percentages, sustaining growth and surviving cut-throat competition while providing attractive returns to shareholders. However, the greed for more without befitting platform and fundamentals, brings its own challenges and questions in people's minds.
While the efficiency and profitability of banks have increased, there is still an unfinished reform agenda for the banking sector. The financial health of the state-owned commercial banks is still fragile and a number of private banks are vulnerable, owing to exposure to the declining stock market. A few banks are fully compliant with Basel II standards.
"We have already conducted stress testing on banks. Most banks have been found at moderate level', Chowdhury said.
Stress testing at banks has usually been run by a single group that controls the models and analytics. That has made sense, but as the requirements become more onerous, banks will have to involve more of the organization in a hub and spoke matrix rather than continue to rely on a single central group.
BB deputy Governor said that stress testing now mandatory for the scheduled banks.
The image of the banking industry has many times been tarnished by several stories regarding the owners in recent media releases. Despite the considerable progress made, foreign countries are still somehow treating activities of the country's banking industry as questionable.
"Collusion between corrupt commercial bank officials and businessmen contributes to the problem of bad loans. Extreme pressure from high ups, rampant insider borrowing, lack of impunity and frequent examples of arrogance by the defaulters towards the regulators and supervisors caused the decay of the system. But new regulations and effective supervision have improved the situation", S.K Sur Chowdhury said.
Banking experts say the supervision of Bangladesh Bank has improved a lot in recent time but remains constrained by a lack of autonomy in hiring skilled and professional staff. The risk and compliance field is "one of the hottest jobs in banking right now," said a top banker of a private commercial bank.
At a time when banks are trimming staff to lower expenses, one area of hiring remains hot: risk and compliance. Banks, wary of being penalized for violating new regulations introduced since the present governor Dr. Atiur Rahman assumed the office, are staffing up on risk and compliance personnel in Bangladesh and elsewhere.
In this regard, BB deputy governor said there were issues with lack of compliance on part of the commercial banks. One such area is the insider-borrowing problem. But those days have gone. The situation has improved a lot. Now banks are not allowed to involve in this types of lending", BB deputy governor said.
Replaying to a question, BB Deputy Governor said the central bank's strict supervisory role has unearthed the recent loan scandals like Hall Mark of Sonali Bank, which have dwindled crore of taka from the system.
"We have gradually developed the rules and procedures along with the fit and proper test criteria to maintain financial sector discipline. These changes have increased financial intermediation significantly and enhance financial deepening", Chowdhury claimed.
To address the growing demand for a fast, secure and state-of-the art payment system and reduce the cost of transactions, BB took initiatives to establish country-wide electronic payment infrastructure replacing the traditional paper based clearing and settlement system.
"Our goal is to transform the decades-old traditional and manual system to a modern, automated system', Chowdhury said.
The value of land has increased abnormally due to increasing trend of purchasing of land. " But we have restricted banks bank's loan or credit facility for purchasing land in order to channel credit towards productive areas", SK Sur Chowdhury said.
Bangladesh banking sector has much ahead now. We have rationalized all charges, set single borrower exposure limit waived for power sector, now implementing Basel-II and going to introduce Basel-III, he said.
BB has introduced a detailed guideline on environmental risk management to assess environmental risk along with the credit risk for an overall credit rating prior to disbursement of loan and credit facility, he said.
"We have set the annual agriculture and rural credit disbursement target at a 2.5 per cent of their total loans and advances which was largely achieved. In fact, BB's financial inclusion is a success story in the global banking industry and many Asian countries are now follow us", SK Sur Chowdhry said.
He said banks in many countries have suffered a lot due to their high degree of interconnectedness, credit risk overhang, and difficulties in unwinding their investments in complex financial derivatives.
Besides, changes in regulatory requirements, rapid development of the financial environment and infrastructure, as well as the ongoing management of economic cycles have all played their roles in our response to the crisis of the last decade.
"For that reason, we need to evaluate the effectiveness of our policy tools continuously, in particular, the strength of monetary policy transmission mechanism in the changing financial environment', he said.
Bangladesh Bank has started introducing strategic changes in its existing supervision techniques for ensuring stability in the financial sector. It is gradually complementing its traditional approach of micro-prudential regulation and oversight with macro-prudential techniques to identify systemic risks well ahead of when they materialize and taking precautionary or corrective measures.
"Most importantly, Bangladesh Bank initiated implementation of a Bank Intervention/Resolution Framework, and a Lender of Last Resort Framework last year under its contingency planning initiatives", said.
These frameworks are expected to be functional within a few years, Deputy Governor of Bangladesh Bank said.


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