Misuse of political, economic influence contributing to rise in NPLs: Stakeholders

Economists and business leaders have stated that the misuse of political and economic power is contributing to the rise in nonperforming loans (NPLs), resulting in higher lending rates that further hinder investment and economic growth.

They were speaking at a seminar on "Bi-annual Economic State and Future Outlook of the Bangladesh Economy: Private Sector Perspective," held at the Dhaka Chamber of Commerce and Industry (DCCI). DCCI President Sameer Sattar presented a keynote paper at the seminar.

They also highlighted the fact that the informal cross-border money-transfer system, known as "hundi," and the NPLs of the banking sector are impeding the country's investment and economic progress.

The discussants noted that the country is facing a forex reserve crisis, and banks are encountering liquidity shortages. To overcome this challenging situation, they recommended the enforcement of strict actions and exemplary punishments to prevent illegal practices.

Otherwise, the country might fail to make its achievements sustainable, they said.

"NPLs have become a big burden for the banking sector," said Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem). 

"Politically and economically powerful people exert various kinds of influence. Why are we hesitating to take action against those who benefit from loan defaults?"

Economically, Bangladesh is currently in a transitional period, he said, and in such a situation, strong political decisions should be taken against loan defaulters.

Professor Selim Raihan, who teaches economics at the University of Dhaka, said, "We have not been able to take the right decision in determining the interest rate and exchange rate for a long time."

"For example, we put a cap on interest rates without making any proper judgment. It is said that high interest rates are a major barrier to investment," he added.

The exchange rate is one of the drivers of increased remittances, but fixing the exchange rate is not the only way, he said, adding that there are five rates for dollars, including one for hundi.

"If we want to increase remittances, we should take action against hundi," Selim Raihan said, adding that those who are laundering money abroad do not care about any exchange rate.

Professor Selim Raihan suggested providing special attention to exploring potential local and new export oriented industries to cater to the growing economic needs instead of relying on ready-made industries and remittance inflow.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, emphasised remittance growth to secure a better forex situation.

"To increase remittances, we should send skilled manpower abroad. Last year, Bangladesh sent about 14 lakh people abroad, but we did not get such feedback from them as their living costs were also going up," he said.

He also underscored the importance of good governance and efficient resource management to ensure stability in the country's financial sector.

"Our cost of borrowing is going high, but lending cap remains the same. We are not able to provide any loan at a low rate where the risk is higher," he added.

"When NPLs increase and we don't get money back, that's when we have to mobilise deposits even at the hire rate," said the Mutual Trust Bank CEO. "Reducing NPLs will require political will."

"If we had gone for exemplary punishment, NPLs would not have come to this position. Earlier, we saw NPLs at only state-owned banks," he continued.

Senior Secretary to the Commerce Ministry Tapan Kanti Ghosh raised questions as to why banks are providing such loans that are ending up in NPLs.

He said that the private sector owns those banks, and it has the responsibility to control NPLs.

As entrepreneurs in the banking sector, they should have their own responsibilities when approving loans, said the commerce ministry's senior secretary, adding that the government alone will not be able to control irregularities with laws.

DCCI President Sameer Sattar said it is evident that the economy of Bangladesh faces various challenges from a geo-economic perspective, but "still our economy has deep resilience and commitment to deal with this situation."

Mohamed Ali Hossain, director of PHP Family, said, "If we can ensure a more resilient, consistent, and friendly business ambience in Bangladesh, this will help investment and enable the government to realise more tax revenue in the future."