A portion of bank credit is being used for unintended purposes due to weak monitoring by the regulator and the banks, two former central bank governors and a business leader said yesterday.

The central bank will have to earn autonomy by running the banking industry effectively, they said.

Former governors -- Mohammed Farashuddin and Salehuddin Ahmed -- and President of the Federation of Bangladesh Chambers of Commerce and Industry AK Azad made the observation at a discussion on the situation in the banking sector and macroeconomic challenges.

The Economic Reporters' Forum (ERF) organised the programme at the National Press Club in Dhaka with its President Khawaja Main Uddin in the chair.

“Credit has to be ensured for productive sectors, including small and medium enterprises,” Salehuddin said.

Ahmed said he carried out a research on 18 bank branches recently and found that the banks did not know where the credit was going.

The private sector credit witnessed 19.9 percent growth in the first quarter (July-September) of the current fiscal year against a monetary policy target at 16 percent, according to Bangladesh Bank data.

“Loans are not going to the targeted areas, if so, the economic growth would have been higher,” said AK Azad, who is a leading apparel exporter and a director of a private commercial bank.

“Banks are crazy for profits, they don't see quality always,” said Azad.

Farashuddin questioned if there is such a high growth in credit, why did the private sector investment go down by 1 percentage point last fiscal year?

Hassan Zaman, the chief economist of Bangladesh Bank, said they are working to find where the credit is going.

“The quality of credit growth matters,” Zaman said.

“We're trying to reduce the loan concentration among some big borrowers,” he said.

There was also a debate between the former and present officials of the central bank on the private sector credit growth The FBCCI president fuelled the debate, saying the private sector's credit growth should increase to 25-30 percent to help entrepreneurs create more jobs.

The chief economist of the BB said more credit will fuel inflation to double digit levels that will affect the poor.

He also said the credit growth in India is at 15 percent, which is nearly 20 percent in Bangladesh.

Former governor Ahmed said, “We should not mix up the credit growth of Bangladesh and India; they are different.”

He said India has a very big equity market and companies raise funds from the stockmarket before going for bank loans, but Bangladeshi companies prefer credit from banks.

On the central bank's autonomy, Deputy Governor SK Sur Chowdhury said the BB has the functional autonomy except for giving the employee benefits that are in the government's hands.

News: The Daily Star/Bangladesh/15-Nov-12