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In The Aftermath of Regime Change

Regulatory interventions have notably improved banking sector: City Bank CEO

Published : Thursday, 14 November, 2024 at 12:00 AM  Count : 408
Shamsul Huda
Mashrur Arefin, Managing Director and CEO of The City Bank, said that the current situation in Bangladesh's banking sector has notably improved, overcoming ongoing challenges.

Talking to The Daily Observer recently Arefin said the banking sector   has entered a phase of recovery and stabilization following a period of turbulent years marked by financial mismanagement and lack of regulatory oversight. 

The period of widespread fraud and unsustainable practices, which once plagued a number of banks, has significantly decreased, largely due to strong regulatory interventions from Bangladesh Bank (BB). 

Arefin said BB has played a crucial role in stabilizing the sector by providing liquidity support to struggling banks, a move that has helped avert systemic collapse and restore confidence in the market.

While improvements are evident, Arefin acknowledged that liquidity issue remains a significant issue. The banking sector is currently facing a major liquidity disparity, with around Tk1.75 trillions in excess liquidity concentrated in a small group of banks. 

He said ten private banks, three state-owned banks, and three foreign banks hold the bulk of this liquidity, while many others continue to face severe shortages. 

"This creates a two-tier banking system, with well-capitalized, liquidity funded banks on one side and weaker banks on the other," Arefin pointed out.

The City Bank CEO emphasized the need for better liquidity distribution across the sector to prevent a widening cash gap that could destabilize the financial system.

Arefin also discussed the positive trend in trade financing, particularly in opening Letters of Credit (LCs), which was a significant bottleneck for businesses in recent years due to foreign exchange crisis at Bangladesh Bank. 

However, as foreign currency reserves are stabilizing and export growth continues banks are now able to open more LCs to facilitate smoother international trade.

The CEO attributed this improvement to more flexible foreign exchange policies under the crawling peg system; which helped restoring currency stability. 

"The improved transparency and stability in the forex market have had a direct positive impact on trade financing, making it easier for both exporters and importers to operate," he noted.

Despite these improvements, Arefin acknowledged that one of the most persistent challenges facing the banking sector is the high level of Non-Performing Loans (NPLs), which continue to drag down the financial health of many institutions.

He emphasized that addressing NPLs is crucial for long-term stability of the banking system. One potential solution Arefin proposed was the establishment of an Asset Management Company (AMC), which would focus on buying distressed assets at discounted rates. It would enable banks to clean up their balance sheets and free up capital for new lending. 

"By offloading distressed assets, banks would be in a better position to focus on fresh lending and improve the overall quality of their portfolios," Arefin explained. 

He believes such a move could significantly improve banks' financial health and restore investor confidence.

Arefin expressed cautious optimism about future of credit growth in Bangladesh. While it has been slow in recent months, he believes the newly appointed commerce advisor, along with broader government economic reforms, will create a more conducive environment for business lending. 

With exports on the rise, demand for credit is expected to increase, benefiting banks that are better positioned to lend. "The government's economic reforms, coupled with the expertise of the new commerce advisor, will likely stimulate greater demand for credit," he said, signaling hope for a more robust lending environment.

Arefin concluded by emphasizing the positive shifts in foreign exchange market, which is now operating under a more transparent and market-driven exchange rate system. This, along with improved export performance and a more stable forex environment, provides a solid foundation for banking sector's continued growth.

He stressed that sustained economic reforms, effective management of NPLs and improved credit growth would be key drivers of the sector's future success. 

"With these elements in place, we are optimistic that Bangladesh's banking sector will be better positioned for a resilient and prosperous 2025," he said ending with a note of confidence in banking sector future.



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