The finance minister yesterday backed the government's decision to give licences to new private banks, saying more banks will intensify competition in the industry which is yet to reach all the unbanked.

“We've sought comments from the Bangladesh Bank as the government wants to issue new licences for banks,” AMA Muhith told a discussion on 'budget implementation and challenges' organised by the Economic Reporters' Forum (ERF) at the National Press Club in Dhaka.

Muhith said banks made hefty profits and new banks would create competition, which is good for the industry. He, however, declined to say when and how many new banks will be allowed.

The finance minister also talked about a wide variety of issues, such as balance of payments, exchange rate, capital market, revenue target, development budget, inflation and austerity measures, with the ERF members. But the issue of new bank licences was in the limelight.

Bangladesh's banking system is a web of various kinds of bank groups such as state-owned commercial banks, private commercial banks, state-owned specialised banks and foreign banks. Presently, there are 48 banks. There are also 29 non-bank finance companies regulated by the BB.

When experts and regulator think it is a saturated market, the finance minister said the banking services are yet to reach the mass.

He said the banking industry has been making impressive business for years. Still vast segments of the population, especially the underprivileged sections of the society, have no access to formal banking services, the minister added.

“How many bank branches we have and how many areas our banks have covered so far,” questioned the minister during the debate on providing licences for new banks.

The minister said banking supervision and inspection and money management have become vital in today's world and the BB has to concentrate more on these areas.

He said the central bank did not adequately supervise the banking industry; otherwise the loan-deposit ratio could not exceed 85 percent.

“Some banks have invested far more than the limit. Some of the banks' loan-deposit ratio shot up to even 110 percent,” said Muhith.

On the balance of payments situation, the minister said rapid import growth has created a pressure and if the trend continues, the situation would worsen further.

“We've been able to reduce the pressure by managing the exchange rate,” he said.

He said the Securities and Exchange Commission has formulated a draft of guidelines to offload new shares, including those in the state-owned companies.

The reintroduction of book building system would take more time, but the SEC would not sit idle. “New shares will be offloaded in a fixed price method,” he added.

The minister also warned the bureaucrats who oppose offloading shares of existing listed companies.

About inflation, Muhith said it is becoming a matter of concern and the government is trying to support the poor with subsidies.

“The government is aware of the pressure on expenditure. We're working on different austerity measures,” the minister said.

News: The Daily Star/ Bangladesh/ 25-Jul-2011