Bangladesh: Investors still lack confidence amid political uncertainty: BB report

Dhaka, July 11 (New Age): The country’s business and investor community is still facing lack of confidence to expand business due to political uncertainty which put an adverse impact on the private sector credit growth, according to a Bangladesh Bank analysis report. Besides, depositors cannot regain full confidence over the banking system due to the Sonali Bank-Hallmark scam, the report said. The central bank’s evaluation came from its report titled ‘Analysis of Recent Slow-moving Credit Flows’ prepared by BB joint director Md Bayazid Sarker. The analysis report was placed on Thursday before a central bank internal meeting presided over by BB deputy governor SK Sur Chowdhury. BB executive director Mohammad Naushad Ali Chowdhury, SM Moniruzzaman and other senior officials attended the meeting at the central bank headquarters in the capital. The central bank report said borrowers and investors seemed not to be confident enough on overall investment climate for which scheduled banks were overcautious and felt less comfort to persuade fresh lending. ‘Lower demand for fund leads excess of loanable fund. Market forces seem unable to function with expectation due to have quasi base rate tagged with government saving certificate rates,’ the BB report said. All these causes ultimately result in slow-moving economic activities, but how long it will persist, that is the prime question now, according to the report. ‘The answer may not be simple. In fact, business and investor community are waiting, expecting and trying to be ensure that further political uncertainty will not come again shortly,’ the report said. Against the backdrop, the political uncertainty put an adverse impact on the private sector credit growth. The year-on-year credit growth rate in the private sector stood at 11.39 per cent in May against 11.86 per cent in April. The BB monetary programme for January-June 2014 set a target of 16.50 credit growth in the private sector. Due to the lower credit demand from the private and public sector, domestic credit market is facing excess of fund while foreign fund with low interest rate is being pumped into the economy although own foreign currency earns at below 2 per cent interest rate. The excess liquidity excluding the statutory liquidity ratio in the banking sector increased to Tk 1,20,675 crore as of March 31, 2014 from Tk 58,988 crore as of March 31, 2013. However, encouraging cheaper foreign fund may incur two types of risks — mass withdrawal risk for short-term borrowings and exchange rate risk for long-term borrowings. The private sector foreign loan stood at $466 crore as of March 31, 2014 against $227 crore as of March 31, 2013. The analysis report recommended that the BB should take regulatory measures only to keep faster move of credit flow in line with business cycle and economic growth. Foreign debt flow policy should be stringent more to avoid risks, the report recommended. A BB official, who attended the presentation meeting of the analysis report, told New Age that the country foreign exchange market would face a major risk if the investors repay their short-term foreign loans at a time that would also make unstable the taka-dollar exchange rates. The depositors are yet to regain full confidence over the banking system due to the Sonali Bank-Hallmark scam along with BASIC Bank loan scandal. The government and the BB should take immediate measures to help regain the confidence by increasing their monitoring on the banking sector.