Dr Zaid Bakht, chairman of the board of directors of Agrani Bank Limited, underscored the need for prompt post-election actions by the government to address challenges like inflation, exchange rate fluctuations, and political uncertainties that have a significant impact on trade and investment.
In a recent interview with Banglanews, the renowned economist also expressed optimism, foreseeing significant sectoral growth by the financial year's end.
The interview, conducted by Banglanews Senior Correspondent Zafar Ahmed with Senior Photo Correspondent GM Mujibur, delves into crucial aspects, including the banking sector, inflation, the dollar crisis, pre-election economic conditions, and potential tasks for the new government.
Banglanews: The new government has assumed office with many challenges lying ahead. What challenges and concerns do you think the economy faces?
Zaid Bakht: The macroeconomy faced various challenges last year. High inflation and currency exchange rates were a challenge. The policymakers tried to control the situation but they faced some limitations due to the general election. Now the election is over. For the government’s success, it is necessary to reform the banking and financial sectors with more emphasis on reducing inflation, making the currency exchange rate market-oriented. This will provide relief for the forex reserves.
The fair election has dispelled uncertainty both locally and internationally. The stock market has started to make a turnaround. Government’s various steps will now gather pace. As the situation has now become normal, everyone will come forward to make investment. This will boost the economy and international trade. The government will move ahead with new zeal and priorities.
It has formed a new cabinet with considerable thoughts. It can be understood from there that the wheel of economy will move. As a result, macroeconomy, inflation and exchange rate will come under control.
Banglanews: Inflation is still a major concern. What measures should be taken to control it?
Zaid Bakht: The increase in the inflation rate is temporary. It is expected to decrease rapidly. There has not been any disturbance in the production sector. However, due to the higher exchange rate of dollar in the industrial sector, there has been some pressure. On the other hand, the cost of electricity and fuel has increased, leading to higher production costs.
This is a global phenomenon. As a result, the economy is under pressure, which has also affected the banking sector as businessmen have not been able to repay their loan installments properly, leading to the rise in bad loans.
Although many countries faced challenges due to the Covid-19 pandemic, we were in a better position due to various policies. For the low interest rate of 9%, businesses did not suffer a lot.
When the economy started to recover from the Covid-19 fallout, the Russia-Ukraine war began, which destabilised the global dollar market.
However, these shocks have been mitigated to a great extent.
At this moment, the situation of the international dollar market is somewhat stable, leading to a decrease in the inflation rate globally. Therefore, if the global economy remains stable, its impact will also be felt in our economy.
Banglanews: Do you think the dollar crisis has eased?
Zaid Bakht: Not stable yet. We have managed the current account balance prudently, resulting in a surplus. However, the financial account deposit still exists, leading to a decrease in reserves. The dollar crisis has also led to a reduction in investments. Overall, there is pressure on the financial account.
However, as we are in a favourable position after the election, we might be able to overcome this.
It will be necessary to align the dollar exchange rate closely with the market rate. If the exchange rate becomes market-oriented, it will also reduce pressure on foreign currencies, and increase remittances and export earnings.
The issue of money laundering has come to the fore again. The hundi market still exists. In 2022-23, a difference of Tk7-Tk8 per dollar has been observed between the banking system and informal hundi market. That means big capital has been smuggled or laundered. Bangladesh Bank has been able to control money laundering especially through under and over invoicing and mobile banking transactions.
However, no significant administrative actions were taken in the last 1-2 years to tackle the hundi market. Many economists have suggested letting the dollar rate float in the market, but I do not agree with them because the divergence in the market rate is due to the capital laundering. If it is allowed to float in the market, ordinary people will adversely be affected.
Banglanews: What are your future plans to make Agrani Bank a better and customer-oriented bank?
Zaid Bakht: The major indicators of Agrani Bank such as deposits, loans, income, expenditure and remittances are prominently positioned in the top tier.
It ranks first among state-owned banks in terms of imports and exports. In remittances, our position is consistently second after Islami Bank Bangladesh PLC.
However, due to the exchange rate problem, a private bank has surpassed us in remittance transactions. As a state-run bank, we do not have the opportunity to offer a dollar rate outside what Bangladesh Bank sets.
The prevalence of default loans has increased in the overall banking sector. A few years ago, default loans had decreased due to interest waiver and the rescheduling facility. However, due to the current economic situation, it has increased again. Agrani Bank is not an exception to this trend.
The default loan rate has risen from 12% to around 16-17%, leading to a visible capital shortfall. Nevertheless, we have already taken initiatives to reduce default loans. If the economy improves this year, there might be its impact on these issues.
Agrani Bank has undertaken and contributed to various projects. We hold a significant share in the financing of the Padma Bridge project. We have also invested in large industries. For financing in small and medium industries, we have received awards from Bangladesh Bank. Additionally, we have provided extra facilities for agricultural financing.
In the realm of digital services, we do not lag behind either. Currently, Agrani Bank has online services operational in all 975 branches. It has no big scam like Hall-Mark, Bismillah and Anontex ones. We strive to maintain this trend.
Banglanews: People used to have more trust in private banks. However, due to various incidents, public trust has started shifting back to state-owned banks. What initiatives are needed to boost people’s confidence in the banking sector?
Zaid Bakht: Even after implementing interest rates of Deposit-Advance at 6-9%, every private bank has managed to make a profit. They have increased interest on loans and reduced interest on deposits. Consequently, depositors have realised that keeping money in government banks does not incur losses.
The service quality of all government banks is currently good, prompting customers to keep their trust in those again. Like private banks, state-run banks can now provide all kinds of services.
To restore discipline in the banking sector, steps must be taken to reduce default loans. I believe the solution will not come overnight.
Existing cases of default loans need to be resolved quickly. Due to the protracted legal process, the loan recovery is not happening. By providing a one-time 2% down payment, the regularisation of loans has led to a reduction in default loans.
Banglanews: What reforms are needed in the economic sector?
Zaid Bakht: The dollar exchange rate needs to be made rational. Bangladesh Bank should take cautious steps. If the government actively tackles money laundering, it will reduce the pressure on foreign reserves. Mega projects need to be implemented efficiently. The new ministers should lead these initiatives with expertise. If these initiatives are implemented effectively, even the private sector will also smoothly. The continued bold leadership of Prime Minister Sheikh Hasina holds the key to stabilizing the economy.
BDST: 1020 HRS, JAN 14, 2024
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