Banks inflating profits with unrealised interest: Ahsan Mansur

Banks are now showing profits by classifying interest on loans as income without collecting debts, said Ahsan H Mansur, executive director of the Policy Research Institute.

"The banks are also distributing dividends from these profits, and the government is collecting taxes from this. The banks, in reality, have earned no actual income, and depositors' money is being looted," he said today at a discussion hosted by the Economic Reporters Forum (ERF) in Dhaka. 

"This means we are 'selling the plates to buy biryani'. How long can banks continue to operate like this? Deposits will run out, and the banks will not be able to return the depositors' money," Mansur added.

The ERF event titled "Causes of Distress in the Banking Sector in Bangladesh" was chaired by ERF President Refayet Ullah Mirdha and moderated by ERF General Secretary Abul Kashem.

An article on the banking sector, jointly by the special correspondent of Samakal Obaidullah Roni and the senior correspondent of Prothom Alo Sanaullah Sakib, was presented at the event.

During his speech, Mansur said the financial sector needs to be cleaned. 

"Problems in the banking sector are intentionally being kept alive instead of resolving them. This is akin to sweeping the smelly dirt under the carpet, which does not really remove the bad odour. It will eventually re-emerge," he said.

Mentioning that various attempts are being made to hide irregularities in the banking sector, the economist said, "This act of hiding information is causing the stench of irregularities in the banking sector to spread throughout the economy. Hiding bad loans, irregularities, corruption, and money laundering will not solve the problems of this sector.

"An initiative must be taken to clean up [reform] the financial sector. It should be initiated by the government and involve the Bangladesh Bank." 

Mentioning that it is not only the export data that gets hidden, Mansur said, "The data from the Bangladesh Bank shows non-performing loans at 11%, but in reality, they are around 25%. The financial sector cannot continue like this for much longer. Due to a lack of supervision, we have lost control of our currency market, and inflation has exceeded our control."

He said the banking sector has been allowed to deteriorate to this level. 

"This has increased irregularities and created a crisis of confidence. A situation has now been created where the banks cannot even save themselves. How will it then secure the depositors' deposits?" he asked. 

Mansur said, "The article about the banking sector [presented at the event] says the government has garnered praise for constructing infrastructures like the Padma Bridge, but now this is being overshadowed by high inflation, bad loans, and financial scandals.

"The responsibility for these issues lies with the Bangladesh Bank as the regulatory authority. If initiatives are not taken now, a major crisis will develop in the country's banking sector," he warned. 

Warning that Bangladesh is becoming more dependent on loans as the financial distress increases, the economist said this is gradually diminishing the country's ability to obtain loans. 

"On the other hand, the government cannot collect enough revenue for budget implementation. Now, there is neither enough money nor dollars for budget execution," he added. 

Mansur said the government is now unable to pay bills in various sectors, including the energy sector, due to a lack of sufficient dollars.

"If health is not good, the burden cannot be borne. Now banks can no longer lend to individual sectors or the government due to the weakness," he observed. 

Mentioning that the growth of bank deposits is between 8.5% and 9% now, Mansur said it could reach up to 10% to approximately Tk170,000 crore this year, he said.

"How will banks meet the target set in this fiscal year's budget if the government takes a loan of Tk137,000 crore? Where will the private sector find the money?" he asked. 

The economist said the budget had projected a 27% growth for the private sector. 

"However, private sector investment has been fluctuating between 22 to 23% so far. If bank deposit growth does not increase while the government needs to lend, how will 27% growth be achieved?" he asked. 

"It was said before the elections that extensive reforms would be brought to the financial sector. But six months have passed, and nothing has been done so far. This is very disappointing," Mansur said.

"For the sake of the country, it is now very urgent to reform the banking sector," he added.

The economist commented that there is no need to sustain dysfunctional banks by printing money. 

He said that even if the central bank continues to print money "in the name of protection" of the Islamic banks, inflation will increase. At the same time, high inflation cannot be brought under control if BB gives loans to the government by printing money, he said. So, in the larger interest of curbing inflation, money printing must be stopped now, Mansur said.

"Reserves are now being increased by borrowing from other countries. In this way, the reserve cannot be increased for a long time. Reserves should be increased using sustainable methods like export income, expatriate income and stop money laundering. Now the incentive that is being given to expatriate income should be stopped. Because the dollar price has become market-based. These incentives are eaten by some institutions in Dubai, with which the interested parties are connected."

"Due to the financial crisis, Bangladesh is becoming dependent on debt day by day. Even the country's borrowing capacity is gradually decreasing," he added.