The country’s leading economists and bankers have recommended for slashing interest rates spread through ensuring perfect competition among the banks, saying that rational level of spread would help boosting business activities across the country, says a press release. 

The recommendations came at a three-day long Bankers’ Summit-2012, organized by the Financial Excellence Limited (FinExcel), a private advocacy organization, held at BRAC CDM Saver in Dhaka from April 12 to April 14. They also said that the commercial banks would have to take effective measures to minimize asset-liability mismatch by improving their fund management efficiency.

The speakers also urged the government to ensure operational independence of the Bangladesh Bank (BB) for better monitoring and supervision of the banks. They feared that the new banks might face difficulties in recruiting skilled manpower particularly to manage their foreign exchange operations.

The FinExcel organised the summit for the first time in Bangladesh in cooperation with the Data Edge Limited, a leading IT Company, to discuss ‘50 Year of Banking in Bangladesh –Vision 2021.’  “Nearly half of our population still remains deprived of banking services, and poverty still afflicts nearly a third of the country’s population,” BB Governor Atiur Rahman said while speaking as the Chief Guest at the opening session of the Summit on Friday morning.

The central bank chief said lending resources of banks continued being channeled largely to well off borrowers, often with insufficient diversification and inappropriate asset-liability maturity mismatches. 

“Corporate governance weaknesses linger in many banks, allowing dominant equity holders to manipulate credit access, credit appraisal and internal control processes to their own advantage,” he said, adding that the banks would need to carry out stress testing exercises regularly to identify and address emerging institutional vulnerabilities against shocks from both internal and external origin.

The BB Governor also said the Banking Sector in Bangladesh had grown several times since independence in 1971. Citing statistics, he said that credit and investment assets of scheduled banks amounted in December 1972 to a minuscule Tk 7.07 billion whereas this stood 654 fold higher or Tk 4,625.85 billion in December 2011.

“The banks should ensure the quality services with reasonable cost,” former BB Governor Salehuddin Ahmed said stressing on effective measures to overcome challenges. He said the banks would have to improve their fund management for minimising assets-liabilities mismatch, which was still a challenge in the banking system.

He also said discloser of audit reports and financial statements of all financial institutions should be transparent to ensure their accountability. “The quality of financial statement is not good in Bangladesh,” former BB Governor said, adding that cross board financial management has to be strengthened.

“The introduction of non-conventional pro-poor monetary policy in a country like Bangladesh will be a challenging task, not purely for scarcity of resources or lack of institutional capacity but most importantly for the lack of political will,” he said while presenting a paper titled ‘Challenges for Sustaining Growth and Equitable Development: Monetary Policy Issues”.

Former Advisor to the Caretaker Government Akbar Ali Khan said the interest rate spread was still higher in Bangladesh compared to other South Asian and East Asian countries due to lack of perfect competition. Mr. Khan also suggested the authorities concerned to tag the interest rate spread of the banks with income tax measures.

Regarding approval of the new commercial banks, former BB Governor Mohammad Farashuddin said the new banks would mop up fresh liquidity from rural areas across the country. “NRB banks will also help to boost flow of inward remittances,” he noted.

Former Adviser to the Caretaker Government Mirza Azizul Islam does not think that the banking system would be collapsed after the emergence of more commercial banks. He also said the size of financial market was not large enough.

Glenn Tasky, Banking Supervision Advisor of the Central Bank, supported by the International Monetary Fund (IMF), said the bank has an asset-liability management committee (ALCO) that oversees liquidity management, meets frequency, and records accurately all discussions and decisions made. 

“The banks should diversify both their funding and their liquid assets,” Mr Tasky said while presenting his paper titled Liquidity Governance, Policies and Limits at the concluding session Saturday morning. He also said treasury ensures that the bank’s structural liquidity profile enables the bank to comply with limits and targets. “Asset-liability and Core Risk Management should be addressed properly to run the banks smoothly,” Senior Banker and Professor of BRAC University Mamun Rashid said while giving vote of thanks.

The Daily Sun/Bangladesh/ 16th April 2012