Inefficiency and corruption in the country's banking sector caused a loss of Tk 100 billion in 2016-17 fiscal year, according to private research organisation SANEM.
This loss is equivalent to one per cent of the year's gross domestic product (GDP) and measured on the basis of value of GDP in the year.
This state of the banking sector has been reflected in SANEM's (South Asian Network on Economic Modeling) quarterly review of the Bangladesh economy held at a hotel in Dhaka on Wednesday.
"A combination of factors contributed to causing one per cent GDP loss a year... Had we not had this loss, our GDP growth could have been higher (than the current one)," SANEM executive director and Dhaka University economics teacher Selim Raihan said.
SANEM made the estimate using a 'general equilibrium model', an internationally accepted method, and analysed possible impacts of inefficiency and corruption on the economy.
Selim Raihan explained that at present about 10 per cent of the loans are non-performing and the percentage would be higher if the rescheduled loans and special privileges given to defaulters are taken into account."These loans will not be recovered," he pointed out.
The economist regretted that the banks make loss, clients have to pay higher interests, many including businessmen are denied loans and the banks themselves cannot expand as a result of rising default loans.
The country's GDP growth is likely to be 7.65 per cent at the end of the current (2017-18) fiscal year, according to the projection of the Bangladesh Bureau of Statistics (BBS). The size of the GDP for the fiscal 2016-17 was estimated at Tk 9.48 trillion in constant price.
Ahsan H Mansur, executive director at the Policy Research Institute (PRI), thinks the actual loss caused by the banking sector corruption is even higher than what has been estimated. "The expenses met by our entrepreneurs and clients due to banks' irregularities are much higher than in any other country," he said.
The economist further observed that the accumulated impact of one per cent GDP loss is "far-reaching".
SANEM identified the banking sector crisis, as surfaced in recent times, as a longstanding structural crisis and its review pointed to the people's loss of confidence in the sector following a series of bank scams.
It also expressed concern at the execessive loan distribution by a section of private commercial banks, saying that loan-deposit ratio (LDR) exceeded 90 per cent.
Blaming lack of regulation and inadequate monitoring as well as politically backed irregularities for the recent banking sector crisis, SANEM mentioned that the central bank's lack of autonomy has only intensified the crisis.
Leaders of Bangladesh Association of Banks (BAB) recently held a meeting with the finance minister, in presence of the Bangladesh Bank governor, where some critical decisions were taken.
Dwelling on this, Selim Raihan said, "Nowadays decisions are taken ignoring the Bangladesh Bank which has a unit for formulating its policies. They should have discussed such issues there and taken the decisions. But we didn't see this here so far."
*This report, originally published in the Prothom Alo print edition, has been rewritten in English by Nusrat Nowrin.