Some New Steps In Banking Industry In Bangladesh 2022

 Some New Steps In Banking Industry In Bangladesh

In a recent decision, the Bangladesh Bank agreed to lower the threshold for not treating borrowers as defaulters from 25% in 2020 to 15% (or more) of their total loan instalments due. Additionally, banks were allowed to add the unrealized interest on the loans that accounted for 85% (or less) of the total amount borrowed to their income books, an increase from 75% the year prior. Due to this loose approach, debtors were able to avoid classification by making annual loan payments of only 15%. Additionally, banks were able to reduce their provision requirement, which increased operational profits for most banks in 2021.

Experts claim that banks' high operating profit figures are not accurate and present an unrealistic picture, which is risky for banks. The most obvious issue here is that it is impossible for banks to collect the full amount owed to them, some of which they have already factored into their operating earnings for 2021. Simply said, that is not how any banking system operates in the world. And when it comes to recovering such funds, Bangladeshi institutions have an even worse track record—which only got worse following the outbreak. As a result, the balance sheets of the banks have grown substantially more disconnected from reality. Second, by inflating their incomes in this manner, banks exaggerate their profits and open the door to paying bigger dividends to their owners and shareholders—even when they haven't actually generated any additional income to do so. One wonders whether the central bank or the commercial banks will actually follow through with this given their poor track record of abiding by their own set of rules, even though the central bank has stated that it has instructed banks to refrain from distributing dividends as an additional precaution. Third, banks are driving up the price of their stock simply by changing the numbers, not by running more effectively or producing more, but by declaring larger profits and opening up the possibility of paying out more dividends. Although it is their responsibility to stop such accounting trickery, the regulators urge them on in the meantime. Finally, all of these will distort market activity. In a free market, the demand for a good or service should decide the price, or its true value. The regulators are impeding the market's ability to function and eroding its capacity to set prices by allowing such accounting modifications. Such market distortion is risky, particularly for the banking industry.

Now, the central bank claims that this action was required to ensure that firms can recover from the pandemic-related difficulties. And it is true that the government ought to promote business-friendly policies in order to revive the economy. We support these kinds of regulations. However, the approach that the Bangladesh Bank is taking may enable willful defaulters and their allies to prosper and offer little assistance to real businessmen who wish to conduct themselves legally. Long-term, this could jeopardize our banking sector, which has already been harmed by prior regulatory practices and their failure to thwart successive frauds.