Though Bangladesh has made stellar progress in lots of financial indicators previously one decade, entrepreneurs, industrialists and your complete business sector nonetheless depend on the banking sector for financing.
Banks additionally make long-term loans on short-term deposits, making a mismatch of their treasury administration and sending non-performing loans increased.
For all newest information, observe The Daily Star’s Google News channel. But the burden of unhealthy belongings has turned many banks weak and pushed up the price of funds for debtors.
At the tip of September, the excellent non-public sector credit score stood at Tk 13.79 lakh crore in distinction to round Tk 12.10 lakh crore in the identical month in 2021, information from the Bangladesh Bank confirmed.
Banks and non-bank monetary establishments contributed greater than Tk 1.68 lakh crore to companies to meet their financing calls for throughout the interval, which is 99.63 per cent of the non-public sector financing.
But throughout the identical interval, solely six corporations raised a mixed Tk 626 crore from the stock market, which is taken into account the most affordable supply of capital, in line with the Dhaka Stock Exchange.
“But many entrepreneurs avoid listing on the stock market since they do not want to share ownership and come under accountability,” mentioned AB Mirza Azizul Islam, a former finance adviser to the caretaker authorities.
According to Islam, many influential individuals suppose that banks’ funds will be defaulted simply. “This culture has to be eliminated.”
In one other unpromising transfer, the central financial institution has given many advantages to defaulters.
If such advantages preserve pouring in, it can solely encourage individuals to go to banks as a substitute of the stock market, added Islam, additionally a former chairman of the Bangladesh Securities and Exchange Commission.
As Bangladesh aspires to turn out to be a developed nation, it must take up giant initiatives, however these initiatives cannot be financed by the banking sector alone, mentioned Toufic Ahmad Choudhury, director basic of the Bangladesh Academy for Securities Markets.
Between 2016 and 2040, Bangladesh will want $608 billion in funding to understand its dream of turning into a developed nation, in line with a report of the Global Infrastructure Hub.
“Is the banking sector ready or strong enough to lend the long-term funds? Not at all. So, the government should push the corporates to raise funds from the capital market,” mentioned Choudhury.
When an organization goes public, it must be accountable and are available below common monitoring.
If a listed firm turns into non-performing, its stock falls. Entrepreneurs additionally turn out to be conscious of its efficiency and banks know concerning the well being of the companies.
“This natural linkage in the financial system is absent here,” mentioned Choudhury.
Another purpose for the absence of a diversified supply of financing in Bangladesh is conglomerates can safe financial institution loans simply. Large companies even borrow from a number of lenders once they enterprise out to implement giant initiatives. Thus, they will keep away from itemizing on the stock market, however this isn’t potential in lots of international locations.
Banks may come to the safety market to meet their funding requirement. But they do not accomplish that. Rather, they’re reliant totally on individuals’s deposits.
“This creates pressure on banks’ treasury management,” mentioned Choudhury additionally a former director-general of the Bangladesh Institute of Bank Management.
Meeting long-term financing wants with the short-term deposit has pushed up the NPL, he mentioned.
Defaulted loans within the banking sector hit an all-time excessive of Tk 125,257 crore in June, up 26.3 per cent from a 12 months in the past.
Mobilising funds from banks and monetary establishments is straightforward in comparison with the stock market, mentioned Anis A Khan, a former chairman of the Association of Bankers, Bangladesh.
“While banks can lend within a short time, an entrepreneur sometimes needs to wait more than a year to raise funds from the stock market.”
“The depth of the stock market is not up to the mark, so some entrepreneurs prefer banks.”
A listed firm is obliged to keep up governance and compliance and make disclosures, which isn’t most popular by many business individuals, in line with Khan.
For occasion, if an organization fails to declare any dividend for a 12 months, it’s downgraded to the “Z” class from the “A” class. But entrepreneurs can cease making instalments because of their relationships with banks.
According to Khan, bonds could be a good resolution for long-term financing.
Ershad Hossain, chief govt officer of City Bank Capital, one of many main service provider banks in Bangladesh, says long-term financing demand needs to be met with long-term funds such as insurance funds, bonds and the stock market.
But company bond in Bangladesh is lower than 1 per cent of the nation’s gross home product, whereas it’s 60 per cent in China and 16 per cent in India.
Life insurance funds will be one other supply of financing, however reform is required on this space, Hossain mentioned.
“Mutual funds could be a useful tool to pool long-term savings of people and the stock market should be an investment place for general savers.”
In Bangladesh, banks are additionally key gamers within the secondary market of the stock exchanges.
Hossain mentioned: “But if banks are key players in the stock market, they actually become the major financier in a different way only.”
He advised corporates problem asset-backed securities within the stock market. “This will allow them to avoid the banking system.”
Mirza Azizul Islam urged the federal government to attempt to deliver extra corporates to the market in a bid to extend the contribution of the capital market to the economy and scale back the non-public sector’s reliance on the banking sector.
