Bangladesh Bank Governor Fazle Kabir on Wednesday said in order to maintain sustainable economic growth, banks should go for providing more loans to new business ventures. He mentioned most of the banks disburse loans mostly to old business establishments which is not considered as a good practice for sound economy.
Fazle Kabir came up with the observations while inaugurating the two-day 8th Annual Banking Conference 2019, organised by Bangladesh Institute of Bank Management (BIBM) on its premises. BIBM new study said, new businesses received only 20 percent of the loans disbursed by banks in 2018. On the other hand, banks disbursed the remaining 80 percent to other businesses, it added. The ongoing liquidity crisis has left an adverse impact on the disbursement of firm loans, the study said adding that, it is a negative attitude of the banks' credit policy.
The study said the banks should come out of the situation immediately to retain the fast economic growth. Terming the commercial banks' attitude as unfortunate, Fazle Kabir said, “The polarization of loan disbursement to the new industries is not a good practice at all for the banking sector and the economy as well.”
The banking landscape of Bangladesh is changing rapidly, he said adding that, with the evolution of technology, the entire industry has undergone a massive transformation that has changed the way financial procedures are carried out, and the way financial institutions operate. “The collaboration between finance and technology has led to a radical change in banking operation and services,” he said.
“Alongside benefits, the paradigm shift posed significant challenges to the banks as well as to the regulators. One of the important challenges is the increased compliance and reporting requirements,” he mentioned. Fazle Kabir said, “Enforcement is becoming tough for central banks; and compliance is becoming very expensive for commercial banks. It is crucial now to invest in capacity development and knowledge management to cope with the growing challenges of the banking industry. I am going to share some thoughts on these aspects.”
“It is very important for banks to demonstrate a good compliance culture to maintain their reputation and win the trust of customers, investors and regulators,” he said. “Such culture is important for banks to avoid poor conduct and loss of trust. Practically, in the context of international banking, to be in the business, banks have to be complaint”, he mentioned.
“Compliance has business benefits. Top benefits of complying with stress testing principles include better informed capital planning decisions, and maintaining a forward-looking view of the organization’s risks,” he informed. It is also said to be associated with better return on equity of a bank. Technology driven modern banking has brought notable changes in the compliance procedures and reporting styles, he added.
He said Bangladesh Bank has been active in adopting technological changes and bringing comfortable environment for better reporting and improved compliance by the commercial banks of the country. Fazle Kabir underscored the need for investing in capacity development and knowledge management to cope with the growing challenges of the banking industry.
“The banking landscape of Bangladesh is changing rapidly . . . It is crucial now to invest in capacity development and knowledge management to cope with the growing challenges of the banking industry,” he said. However, a total of 60 papers were submitted from home and abroad for taking part in the programme.
From these papers, BIBM review team selected 25 papers to be presented in the two-day event in four plenary sessions. On Wednesday, the two plenary sessions were organized titled “Key Operational and Management Areas of Banks-one” and “Key Operational and Management Areas of Banks-two”.