Wednesday, January 13, 2016, Poush 30, 1422 BS, Rabius Sani 1, 1437 Hijri

Excessive competition may put the banks under extra pressure
Shaiful Hossain
Published :Wednesday, 13 January, 2016,  Time : 12:00 AM  View Count : 63
Capitalist economy is always pushing everybody and every organization in tremendous competition. Competition is encouraged as it works as a catalyst in ensuring quality service, cheaper price and reasonable growth. Competition is the backbone of capitalistic economic policy. Promoting competition is broadly accepted as the best available tool for promoting consumer well-being. But does competition always benefit society? In today's world financial system competition can yield: a) lower costs and prices for goods and services, b) better quality c) more choices and variety d) more innovation e) greater efficiency and productivity f) economic development and growth g) greater wealth equality, h) a stronger democracy by dispersing economic power, and i) greater wellbeing by promoting individual initiative, liberty, and free association but life would be more stressful if we competed for everything. Competition cannot always be preferred over cooperation. Cooperation is often more appealing and socially rewarding. Society and competitors at times benefit when rivals cooperate in joint ventures and addressing societal needs. But one important issue is when competition makes people less cooperative, promotes selfishness and free-riding, it reduces contributions to public goods, and leaves society worse off.
Defining competition and cooperation is not the purpose of this writing. Growth could have been slow in GDP, delivering service and what not if the societal pressure of competition (not uneven) were absent but unethical competition can cause havoc in personal and social life and economy as a whole. American people are tremendously encircled with competition and their economy is not an exception to this resulting enormous frustration and disappointment in their personal and societal level. Where even competition fastens the pace of normal life, uneven and unethical competition distorts and disrupts normal human veins and economy's prudent cyclical flow.
Banking sector in Bangladesh is surpassing an era of inherent turmoil and unseen uneven and unethical competition in procuring business. Buying other banks' asset offering the clients more finance than they need has been a normal and genetic behaviour of some banks. The continuation of this practice may put the banks that are doing it in long-term sickness like cancer as today's unjustified booking of ill-assets will give decay and death in future.
If we look back with our prying eyes we find that just after the impendence in 1971 the banking sector of Bangladesh started its journey with a new dream and commitment towards equality and social justice along with growth and development. As we all know banking industry in Bangladesh started its journey with six nationalized commercial banks, two state owned specialized banks and three foreign banks. In the 1980s, banking industry achieved significant expansion with the entrance of private banks. Now we have 56 scheduled banks in Bangladesh who operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. 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.
In spite of having a good number of challenges the banking industry of Bangladesh has got a sound and sustaining base as it could survive the global financial crisis that started in 2008 and still not ended. Though we have got expected success of sustainability, the banking sector is still facing a number of challenges. Influx of excess liquidity in the banking business has been a chronic issue in recent years. After the crash in the stock market in the year 2010 there was shortage of liquidity in the banking sector. But currently there prevailing an opposite scenario. Excess liquidity in the banking reached over Tk. 83000 crore at the end of November 2013 and by the end of September 2014 it stood Tk 1, 50,454.50 crore due to low investment and credit demand.
The financial market experts and bankers think that volume of excess liquidity has been increasing over the years mainly due to a noticeably low level of demand for credits by the private sector. This low level of demand for Loans and advances on the part of the private sector has been because of the worsen business situation of the country both in domestic and international market, consecutive contractionary monetary policy taken by Bangladesh Bank and long-persisting problems in supplying gas and power. Allowing of foreign Loan to the manufacturing and heavy weight projects is another reason of low credit demand by the indigenous banks. The business community has been frustrated by the undesirable and non-cooperative role played both by the opposition and the Government. It is alleged that in some cases they are trying to shift their investment to abroad.
Private sector credit growth remained well below the target set by monetary policy of Bangladesh Bank for the first half of the fiscal year 2014-15 due to the sluggish investment climate amid political unrest.
The credit growth stood at 12.7 per cent in November 2014 - 1.3 percentage point below the 14 per cent growth target for December last year, according to the central bank data.
According to Bangladesh Bank data, the private sector credit growth remained between 11 per cent and 12 per cent in June to December 2014. The actual credit growth was 10.6 per cent in December 2013 against the projected growth of 15.5 per cent. The growth rate was also far below at 12.3 per cent in June 2014 against the target of 16.5 per cent during the last year. Credit to the public sector also witnessed a slower growth with posting 6 per cent progress in November against the ceiling of 14 per cent by December 2014. However, the public sector credit went up to 12 per cent in September last year, crossing the limit of 9 per cent.
Amid the slow credit growth, the high growth of default loan is remarkable. Now 56 banks are shouldering a huge burden of more than Tk 55, 000 crore default loan which is 10.47 per cent of their total loan where the lion share of default loan goes to the NCBs.
Credit growth is very poor- for some banks it is negative, market is over liquid, pace of investment followed by inadequate infrastructural facilities, political turmoil, uncertain and less safe law and order situation is notably slow and the default loan is record high- these indicators don't give us any sweet- scenario of the banking sector. Under these circumstances the Managing Directors and CEOs of the banks should be under extreme pressure of raising the profit downsizing the NPL ratio and really they are very vigilant and more-than-careful to beautify the data to be enveloped in the balance sheet as they might be caught by the shareholders and directors in the AGMs if they can't fulfil their expectations.
Competition followed by tension, frustration, fear of losing profit etc. may have the chance of leading towards unethical practices being in line with business. Booking of new customers, offering them more than they actually need and buying of other banks' week assets may increase the pace of frustration a bit further. Supply of excess fund in any business may be a cause of its self-destruction. Many good customers have turned into bad ones because of not being able to manage the excess funds given by different banks without proper assessment of the working capital requirement of the business. Bankers' prudence and wisdom along with maintaining credit norms and guidelines given by regulatory bodies can help banks keep in pace with sustainable growth and development.
Bankers need to go for quality not for quantity in assessing any new or upcoming credit proposals. Entertaining today a bunch of week asset portfolio may result in a flood of agony of numbness tomorrow.
Shaiful Hossain is a banker and columnist.
Email: [email protected]

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