After effects/impacts of bank crisis

1. In the beginning of the year 2018, Private banks in Bangladesh have been
facing a severe liquidity crisis since the beginning of this year, which is
affecting the country’s businesses. Due to the crisis, interest rates on bank
loans went above 10%, affecting the country’s industrial growth by making
it more difficult to take a loan.
2. Following the crisis, the central bank and the government have come up
with a series of bailout policies to save private banks.
 In one sense, the decisions would put public money at a
greater risk
 The policies include reducing the cash reserve requirement (CRR) by
one percentage point to 5.5% from 6.5%
 reducing the repo rate by 0.75% points to 6% from 6.75% aiming to
make funds cheaper for all commercial banks
 making deposits of 50% of the funds of state-owned agencies in
private banks mandatory up from of 25%, and extending the deadline
for adjusting the new advance-deposit ratio (ADR) to below 83.50%
from the existing ceiling of 85% for conventional private banks and
89% from 90% for Islamic banks, till March 31, 2019.
 According to banking experts, private banks would receive an
influx of Tk80,000 crore due to government policies with the
purpose of stabilizing liquidity.
 While experts and economists criticized the government’s
initiatives, saying the decisions would endanger the money of the
depositors, policymakers claim there is no other way to save the
banks.
 https://archive.dhakatribune.com/business/2018/04/16/saving-private-
banks
3. Put together, these banks also had a capital shortfall of Tk 12,683 crore at the
end of June 2017, again, despite the government's most recent injection of Tk
2,000 crore using funds it had received from taxpayers on top of the Tk 116.6
billion handouts it had given to state-owned banks at taxpayers' expense
between fiscal year 2011-12 (July-June) and 2016-17 according to its own data.
Besides this form of continual wealth transfer from the general public to the
corruption-ridden and seemingly incompetent state-owned banks (and
ultimately to the defaulters), what is worrying economists and other experts
further is the fact that this problem in the banking sector has actually been
getting worse in spite of having prolonged for this long.
 Taking all these figures into consideration, it is nearly impossible to
understand the logic behind the government's insistence on bailing banks
out, especially when during a March 2017 meeting the government's
own finance division observed that, “despite the regular infusion of
budget funds, state-run banks have not improved their NPL positions.”
In fact, the BB itself did not actually “recommend any capital infusion
for these banks to the finance ministry” during the past two years, and
banks were only provided bailout money upon insistence by the finance
ministry.
 Because of this and other reasons, a former deputy governor of the
Bangladesh Bank, Khondker Ibrahim Khaled, said that the finance
ministry cannot avoid responsibility for the current conditions of our
banking sector. And that the two main reasons for the unusually high
default loans in the state-run banks were enormous “corruption” and
“inefficiency.”
 Moreover, according to Khaled, it was the government itself that sowed
the seeds of corruption into the sector by appointing “many corrupt
people.” Two such examples are Syed Abdul Hamid, the former
managing director of Agrani Bank who was appointed by the finance
ministry despite objections from the BB, and Sheikh Abdul Hye
Bachchu, the former chairman of Basic Bank, who is alleged to be
responsible for bringing the once profitable bank to its knees after also
being appointed by the ministry.
 According to Dr Bhattacharya, not only were no “preventive measures”
taken, but the government actually went on to increase “the control of
the family members of bank owners through amending the banking law
and regulations.”
 And following the implementation of the new law allowing four
members of a family to be directors of a bank with extended terms, a
former chief economist at the Bangladesh Bank, Biru Paksha Paul, wrote
in The Daily Star that, “Some bank owners took advantage of this new
law and made sudden changes in the directorship positions, triggering a
state of panic among depositors and other stakeholders.
 But apart from increasing wealth inequality, the crisis in the banking
sector is harming the country's economy in other ways as well, according
to a former governor of Bangladesh Bank, Salahuddin Ahmed. To
emerge from the pressure that they are under because of rising NPLs,
“banks are reducing interests on deposits” and the “government is also
considering new taxes,” said he.
  https://www.thedailystar.net/supplements/building-modern-economy/
banking-sector-and-its-impact-on-bangladesh-economy-1536568

4. The government's role in all this is quite disquieting: Not only has it not
taken exemplary action against these "financial thugs", to quote an earlier
HC observation, the central bank has even appeared to harbour defaulted
borrowers, relaxing rules on loan classifications and rescheduling and
thereby helping the industry to camouflage scams. Reportedly, bad loans
totalled Tk 113,441 crore in March this year, just shy of the record high of
Tk 116,288 crore totalled in September 2019.

5. DHAKA -- Bangladesh's banking sector is girding for a rougher

ride after Moody's, one of the big three global rating agencies,
downgraded its outlook for the sector from "stable" to
"negative."

 The International Monetary Fund, which recently granted

a $4.7 billion loan package to Bangladesh, has expressed
serious concerns about the continuing growth of bad debts
and asked the government to revamp the banking sector by
strengthening regulation and supervision.

 Jyoti Rahman, an Australia-based Bangladeshi economist,

agreed that while agencies like Moody's make assessments
based on quantitative analyses, they also likely took into
consideration corruption scandals and controversies
surrounding the sector. "This downgrading will obviously
make finances costlier. If banks are unable to pass on the
higher cost of borrowing ... then this could add to the liquidity
problems in the sector as well," he said.


 6. Moody’s, one of the big three global rating agencies,
recently lowered Bangladesh’s local-currency and
foreign-currency ceilings to Ba1 and Ba3 from Baa3 and
Ba2, respectively. It also placed the country’s long-term
issuer and senior unsecured ratings of Ba3 on review
for downgrade.

Ba ratings indicate substantial credit risk.

7.