The central bank should allow lending against savings instruments with the dual objective of reducing the pressure of government borrowing on banks and raising liquidity by pulling unbanked money into the economy, said Syed Mahbubur Rahman, chief executive officer and managing director of BRAC Bank Ltd. At present, banks cannot lend money against savings instruments, he said, describing it as discouraging for people who possess idle money outside the banking ambit.

In an exclusive interview with The Independent, Rahman said sales of savings instruments had declined by 71 per cent last year owing to lower rates of interest on such instruments as Family Savings Certificates (FSCs), Pensioner Savings Certificates (PSCs), Wage Earners’ Development Bonds (WEDBs), monthly profit-based savings and the five-year Bangladesh Sanchaypatra. The trend still continues despite the rate hike last July, he said.

“In my experience, I found that people want to borrow against investments in savings instruments in case of any trouble. In fact, the sale of savings instruments could be much higher if the central bank allowed lending money against them,” Rahman said.
“I think the central bank should create such an option right now,” he added.

This would benefit the banking sector as it would help greater mobilisation of resources, creating scope for the government to reduce its dependence on bank borrowings at high rates, he observed.

“Simultaneously, the rates of interest on saving instruments should be raised to lure people into buying them,” he said. He also said the authorities concerned must ensure that the pressure to maintain greater liquidity does not take its toll on the banking sector. He further said the recent call money rates denote the deepening liquidity crisis for banks. Many banks could not honour loan commitments made to their importer-clients, he added.

“Earlier, the call money rates moved up only during major events, such as Eid-ul-Azha and Eid-ul-Fitr. But, recently the rates have soared above 20 per cent without any such reasons,” he observed.

The BRAC Bank MD said the government should be alert enough to tackle the current economic situation, which is worsening further due to a negative balance of payments scenario and the fact that wholesale government borrowing is hurting private sector credit growth.

He said the private sector needs adequate credit from banks for the sake of industrial growth as well as job creation. High import is causing a tremendous pressure on foreign currency prices that have gone up in the past few weeks.

Rahman also said the government should mobilise funds from the International Monetary Fund, Japan International Cooperation Agency, World Bank and Asian Development Bank by March to make deferred payments to Islamic Development Bank and Malaysia.
“The funds must be in place on time. If the government fails, the country’s sovereign ranking may take a hit,” he said.

Rahman said the last couple of years were not good for the banking sector, but it has to cover more unbanked people and facilitate potential entrepreneurs that come with viable plans. “No bank is going to be bankrupt thanks to the strong regulatory supervision. It is the strength of this sector. Besides, corporate governance in banks is also a great example for others to follow,” he said.

He described poor human resources as the main bottleneck for the sector. There is an acute lack of mid-level management personnel in banks, he said.

On the “no-new-bank” issue, he said: “It is not right to put up more banks now given the current economic situation and the size of the banked population.” The country has been widely known as an over-banked economy, as the banking sector has experienced a boom considering the US $100-billion GDP (Gross Domestic Product) of the country, he said.

Rahman said mobile banking can cover 50 per cent of the population. About 15 to 20 per cent of the total population avail banks’ financial services, he added.

He said BRAC Bank has been focused on financing SMEs (Small and Medium Enterprises) from the very beginning. He also said that 50 per cent of the bank's total loan portfolio promotes SMEs, as this sector is more labour-incentive than others.

“Our system is to mobilise money (deposits) from urban areas for investment in rural areas,” he pointed out. He described agriculture and industry as two prime sectors of the economy. These sectors have hundreds of thousands of SME initiatives, he noted.
The Bank CEO said the government should revise its farm subsidy policy for the benefit of small farmers.

“The subsidy must be rationalised to benefit marginal farmers,” he added.
The Bank is one of the first three in the private sector in terms of handling remittances from abroad, with a monthly remittance “turnover” between $45 and 60 million.

The Bank has earned operational profits in the last couple of years. After tax deduction, it earned Tk. 166 crore in 2010, and Tk. 130 crore in 2009. Total advances and liabilities in 2009 were Tk. 6, 145 crore and Tk. 7,522 crore, respectively, while they were Tk. 8, 430 crore and Tk. 8,815, respectively, in 2010.

The Bank's board has not yet provided the data for 2011. Rahman said the bank aims to increase its advances and liabilities by 20 to 25 per cent in the current year.He, however, did not reveal the Bank’s CSR (corporate social responsibility) expenditure.

The Daily Independent/Bangladesh/ 23th Jan 2012