Economy under pressure, measures are being taken: BB governor

Bangladesh Bank governor Abdur Rauf Talukder has said the country's economy is under pressure and the main reasons behind this are the increase in the dollar value, increased imports, decreased exports and the growing trend of inflation.

However, with an increase in both remittance and export revenue in July, as well as commodity prices starting to fall in the global market, the governor hopes for a positive trend in the economy in the next two or three months.

The governor also remarked that the depth of the bank sector was low, for which the fund flow to the sector was also low. With less money flow, a liquidity crisis often arises. Less cash flow in the banking sector was also a serious challenge.

The central bank governor made these remarks at a press briefing on Thursday at the Bangladesh Bank's Jahangir Alam conference room.

The governor arranged the briefing along with the four deputy governors Ahmed Jamal, Kazi Saidur Rahman, AKM Sajedur Rahman Khan and Abu Farah Mohammed Naser, as well as the head of Bangladesh Financial Intelligence unit (BFIU) Masud Biswas.

About the governor's opening statement, Bangladesh Bank's economist Habibur Rahman made a Power Point presentation on 'Bangladesh's recent measures to control inflation and the currency exchange rate in context of global uncertainties'. The rest of the briefing was a question and answer session.

The governor said, a survey has indicated that cash flow in the country is 42 to 43 per cent compared to the GDP, while in India it was 88 per cent, in Malaysia 120 per cent, and Singapore 150 per cent. The governor said, while inflation was a serious problem, it was turning towards a positive trend due to the steps we have undertaken. Remittance has returned to a positive trend and imports have also fallen.

When asked if the 9 per cent interest on loans and 6 per cent on deposits will be lifted, given the circumstances, the governor said there was nothing to say about the 6 per cent interest, but there was about the 9 per cent interest. The governor said, "What will happen if these rates are withdrawn? The interest rate on loans will shoot up and this will lead to a decrease in credit flow in the private sector. Investments will also fall and ultimately employment will also decrease. This will also hamper an effective control of inflation."

In reply to a question about several banks owned by a certain business establishment, the Bangladesh Bank governor said, "It is not for us to see who the owner is of which bank. We want good governance. The foreign banks do not accept the letter of credit (LC) of some of our banks and want another bank's guarantee -- we do not want it to be like this."

When asked about such statements of the central bank governor, former caretaker government advisor AB Mirza Azizul Islam told Prothom Alo, "There will be an improvement in the global situation to an extent and inflation will decrease. The way for wheat to come from Ukraine has opened. But I do not understand how export earnings will increase. Inflation has increased in the countries which are the main destination of our exports. This will naturally lead to a fall in demand for our products. However, with new people going overseas, our remittance may increase well, though this fluctuates throughout the year."

Mirza Aziz agreed with the Bangladesh Bank governor's contention that cash flow was less compared to the GDP. However, he said, it was not clear what measures were being taken in this regard. It will be difficult to restore good governance in the banking sector unless it can be freed of the alliance between the political leadership, bank owners and the bank management authorities in the matter of bank loans.

Bangladesh highlighted the steps it took in the past few months. It was said that in June 2021, the taka rate against the dollar was Tk 84.81 and in April this year it is Tk 94.70. In the interests of stabilising foreign exchange rates, while USD 7.70 billion was bought in 2021, in 2022, a total of USD 7.40 billion was sold. In July alone, USD 1.19 billion was sold.

Bangladesh Bank chief economist Habibur Rahman said, "We were criticised for not devaluating the taka, but we have done so considerably now."

At the briefing it was said, several steps had been taken by the central bank including inspections carried out by 10 inspection teams, increasing interest of the export promotion fund from 2 to 3 per cent, simplifying the system of sending remittance to the country and more.

While the dollar exchange rate is said to be Tk 94.7, some banks are buying dollars from the kerb market for Tk 112. As commodities are being imported with those dollars, the price of commodities is also going up and this puts pressure on inflation. Many are in favour of leaving this to the market. The governor said, "Probably that is the direction in which it will gradually go. The price of the dollar will reach a stable level."

The central bank wants good governance. As part of that, based on four variables to identify relatively weak banks, 10 weak banks have been identified. The variables are - the rate of classified loans, adequacy of capital, loan-deposit ration and the amount of provisions.

It was said that Bangladesh Bank has begun one-on-one talks to resolve the problems of the weak banks. The banks will provide Bangladesh Bank with three-year business plans. After that, a senior official of Bangladesh Bank will monitor the progress of each bank.

Governor Abdur Rauf Talukder preferred not to name the 10 weak banks.

People are not getting back the money they deposited with certain financial institutions and will this happen in the case of the weak banks too, the governor was asked. In reply, he said, "Everyone is aware of the mistrust in financial institutions. We have taken several measures so this mistrust does not enter the banking sector. We are working to first build up trust in the banking sector and then we will look into the financial institutions."

The governor feels that the banking sector must emerge from the culture of taking short term deposits for long term loans.

Speaking to Prothom Alo about these statements, Bangladesh Bank's former governor Salehuddin Ahmed said he wanted to thank the governor for recognising the problems, but the measures were not adequate. For example, the difference between the interest on deposits and loans does not remain much. The banks never give interest higher than 8 to 9 per cent on deposits. So interest rates can be kept open.

Mentioning that the managing authorities of banks have become very weak, Salehuddin Ahmed said the association of bank MDs, ABB talk in the same manner as the association of the bank owners BAB.

ABB needs to be strong. He said, while attention is being paid to 10 banks, the entire banking sector needs good governance. This can be possible to a great extent if there are good intentions.