Default loans creating liquidity crisis

Former deputy governor of BB Khondaker Ibrahim Khaled tells daily sun

Anisul Islam Noor

5 July, 2020 12:00 AM printer

Default loans creating liquidity crisis

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Prominent banker and former deputy governor of Bangladesh Bank Khondaker Ibrahim Khaled sees the recovery of defaulted loans as a major challenge in the country's banking sector.

The default loans coupled with the recent decision to delay bank loan installment payments have created a liquidity crisis in the banking sector, he said. 

“To keep liquidity flow of banking sector on right track, loan distribution and recovery are important. If the banks continue loan disbursement and installment collection is deferred, the crisis will not be overcome,” he said in an interview with the Daily Sun.

The coronavirus pandemic has created a depression in overall economy. Not recovering the defaulted loans or deferring the installment collection for a long time will only deepen the crisis, he feared. 

Trade and commerce can be kept running with caution in compliance with the WHO health rules and local doctors. Failure in doing so will leave the economy paralyzed,” he opined.

Ibrahim Khaled said central bank’s decision of deferring loan installment collection is not like the decision of a regulatory body. An influential group has made Bangladesh Bank to issue such a circular, which is quite harmful for banking sector.

Those, who are capable investors and entrepreneurs and can pay their loan installments regularly, are now delaying payment willingly, deteriorating the liquidity crisis, he alleged.       

The banks deal with their clients on basis of mutual trust. The good but Covid-19 affected clients should get relief for paying installment in this crisis period, he opined.

Replying to a query, he said salary cut of banks’ employees amid corona pandemic is not a wise decision at all.

He also thinks that the suggestion of Bangladesh Association of Banks (BAB) to cut bankers’ salary is not proper. “Every bank has separate board of directors who are the right authorities to do so.”

Admitting that some banks may see a slide in their operational profit this year due to Covid-19 impact, he observed that some banks still have enough capacity to pay their staff. “Why will they be deprived,? he questioned.

He observed that the salary cut initiative will not give positive signal to the banking sector as the employees are working with various challenges including health risk posed by covid-19.

Rather, banks should cut their other expenses like higher house rent, luxurious travel allowance, purchasing costly vehicles, meeting allowances etc, he suggested.

The country's experienced banker alleged that the representatives of the loan defaulters are formulating the country’s financial policies in their favour.

They are also influencing banking sector’s circulars, which is very bad, he also alleged.

He emphasised that overcoming the distrust and crisis in the financial sector will need the highest level of political goodwill.  Discipline in banking as well as the financial sector will return if effective goodwill is established by the top political leadership.