Dhaka, Bangladesh (BBN)- The Unnayan Onneshan (UO), a non-governmental organisation, has expressed concern that the country’s financial sector is facing multifarious problems, particularly high rate of interest, excess liquidity and decline in the growth of credit flow to the private sector.

The independent think-tank also said high fraudulence due to lax oversight is resulting in truncated profits to shareholders.

“Despite the adoption of more than decade-long policy of liberalisation, deregulation and privatisation in the sector, the research organisation finds that the rate of interest and its spread are still too high to facilitate higher private investment,” the UO said in its latest monthly economic update, released on Saturday.

It also observed that captured governance through politically determined directorship for the nationalised banks, and family and friends domination in the board rooms of the private sector banks, meager actions against the perpetrators, and slack surveillance by the central bank hinder to maintain any prudential system of management.

During the period from January to April of the fiscal year (FY) 2013-14, the average rate of interest has been calculated at as high as 13.35 percent and interest rate spread at 5.14 percent, causing further decline in private investment.

Pointing to the increased non-performing loans and low returns on asset and equity, the UO said the sector is inundated with severe structural rigidities resulting in the disappointment of risk management in the sector.

Referring to the piling up of excess liquidity in the banks to the dispirited investment environment in the country, the private organisation reckoned 64.09 percent increase in the excess of liquidity between the periods of November 2013 to March 2014. Excess of liquidity in the banking system amounted to BDT 1362.01 billion at the end of March 2014, whereas the amount was BDT 830 billion in November 2013, according to the UO.

As regards the public and private sector credit, the think tank said domestic credits recorded a decrease of 11.32 percent at the end of March 2014 over March 2013 against the increase of 11.86 percent in corresponding period of the previous year. Growth of credit in private sector registered at 11.46 percent in March 2014 over March 2013 and witnessed lower than the growth of 12.72 percent at the same time of the previous year.

The UO recommended for improvement in supervision and regulatory capacity of the central bank and streamlining of enforcement of prudential guidelines in order to check the incidences of scams and fraudulence and thus to ensure efficacy of risk management in the banking system.

“Besides, a farsighted harmonization of macroeconomic policies through adopting a monetary policy that will facilitate private investment and curb inflationary pressure and a fiscal policy that will channel adequate resources into productive sectors is required to reinvigorate the management of banks and recover credibility in the sector”, it noted.

BBN/SSR/AD-26July14-9:05 pm (BST)