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fails to help the scheduled banks to recover the defaulted loans,
invest excess liquidities in productive ventures and lower interest
rates, warned the Centre for Policy Dialogue. The CPD also pointed
out that Bangladesh Bank's half-yearly monetary policy overlooks
important issues like bad loans, policy guidelines to encourage
industrial term loans, narrowing of interest rate spread and
integrating microfinance operations. 'The large amount of
non-performing assets has emerged as a source of worry for the
financial sector, which may frustrate the efforts to lessen
inflationary pressure,' the CPD's distinguished fellow, Debapriya
Bhattacharya, told a press briefing on ' Recent monetary policy
statement of Bangladesh Bank (July 2009): an analytical commentary' at
its office on Thursday. According to the BB's statistics, excess
liquidity of the scheduled banks stood higher at Tk 27,716.99 crore at
the end of April 2009 as against Tk 12, 988.58 crore in June 2008,
recording a 113.4 per cent growth. The latest statistics of interest
rate spread — the gap between deposit and lending rates — is also not
encouraging, as the spread remained as high as 5.5 per cent in May
compared with 4.8 per cent at the end of fiscal year 2008-09.
Debapriya appreciated the re- emergence of the forgotten issue of
defaulted loans with the finance minister informing the parliament of
the extent of the bad assets of banks. The prime minister has asked
the finance minister to prepare a report on the defaulters who used
political connections to protect themselves, he added. 'But one
expects to see that the renewed initiative is followed by effective
policy measures,' said Debapriya, regretting that the central bank's
monetary policy missed the vital issue. He appreciated the monetary
policy stance for stimulating investment and economic growth, and
creating employment. 'The monetary policy is consistent with the
economic demands,' he added. He, however, said the central bank is
capable of making dynamic adjustments to its monetary policy in the
course of its implementation in the current fiscal year. He also
recommended formation of a high-powered committee to deal effectively
with the bad debt overhang, infuse more competition in the financial
sector and ensure availability of loans for the private sector from
external sources. He warned that inflation would emerge as a
challenge by the end of the year or early next year as global oil
prices have started increasing although prices of other essentials
like rice and soybean oil have remained somewhat stable. Debapriya
said the country's economy might face a difficult situation if the
increased public borrowings do not go to sectors which create
employment opportunities. He said the credit demands from the
public and private sectors could be met from the huge liquidity in the
banking system. He also pointed out that the budget dependence on
bank borrowing would be increased further if foreign aid and revenue
earnings fall short of the targets and development expenditure does
not decrease. He expressed concern about achieving the agriculture
growth target due to natural disasters as a drought- like situation is
already affecting the present aman crop. 'The central bank should
use the monetary policy as a complementary factor to the fiscal policy
to support agriculture production against the backdrop of the
situation,' he suggested.
