Dhaka, Bangladesh (BBN) – The country’s leading economists and bankers have recommended for slashing interest rate spread through ensuring perfect competition among the banks, saying that rational level of spread would help boosting business activities across the country.
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 between April 12 and April 14.
They also said the commercial banks will have to take effective measures to minimize asset-liability mismatch with 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, saying that the Central Bank should act without fear and favour.
They also feared that the new banks may face problem to recruit skill manpower particularly to manage their foreign exchange operations.
The FinExcel organized the summit for the first time in Bangladesh in cooperation with the dataedge 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 a Chief Guest at opening session of the Summit Friday morning.
The Central Bank Chief said lending resources of banks continue 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 will need to carry out stress testing exercises regularly to identify and address emerging institutional vulnerabilities against shocks of both internal and external origin.
The BB Governor also said the Banking Sector in Bangladesh has grown several-fold since independence in 1971, in tandem with the uninterrupted spell of steady, stable growth of the country’s economy.
Just one indicator may be sufficient to demonstrate the spectacular magnitude of banking business growth, he said, adding that credit and investment assets of scheduled banks amounted in December 1972 to a minuscule BDT 7.07 billion whereas this stood 654 fold higher at BDT 4625.85 billion as of December 2011.
“The banks should ensure the quality services with reasonable cost,” Former BB Governor Salehuddin Ahmed said, adding that the bankers for taking effective measures to overcome challenges.
He also said the banks will have to improve their fund management for minimizing assets-liabilities mismatch, which is still a challenge in the banking system.
The former Central Bank Chief also said that the newly approved six commercial banks might face problem to recruit skill manpower particularly to manage their foreign exchange operations.
“The banks will have to comply with Basel-II framework properly,” Mr. Ahmed said, adding that the banks will also take necessary preparations to implement Basel-III accord.
He also said discloser of audit reports and financial statements of all financial institutions should be transparent to ensure their accountability and transparency.
“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 importanty 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 of the Caretaker Government Akbar Ali Khan said the interest rate spread is still higher in Bangladesh compared to other South Asia and East Asian countries due mainly to the 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 will 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 will be collapsed after coming more commercial banks “but it was unnecessary to give the new banks.”
He also said the size of financial market is not large enough.
“Time is changing very fast and as we believe the world is becoming more competitive everyday if not every hour. To survive this fierce competition we must update our knowledge and energies our skill to face the challenges of the days ahead. If we fail to comply with the need of the hour we are only losing the opportunities for our sustenance,” Chairman of the FinExcel Limited Syed Abu Naser Bukhtear Ahmed said.
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.
Among others, Chairman of the dataedge Limited Alauddin Mazid, Professor of the Dhaka University Dr. Mahmood Osman Imam, Managing Director of the Islami Bank Limited Abdul Mannan, former Managing Director of the Prime Bank Limited M Ehsanul Haque, Managing Director of the Dhaka Bank Limited Khondker Fazle Rashid, Managing Director of the Premier Bank Limited Majedur Rahman, Deputy Managing Director of the Bank Asia Ms. Humaira Azam, General Manager of the National Bank of Pakistan Farooq Abbas and Director dataedge Limited Noor-A-Alam Chowdhury and also spoke on the occasion.
BBN/SSR/AD-15Apr12-1:04 pm (BST)
