As of September 2018, total NPLs in the banking sector stood at Tk99,371 crore
As the country’s banking sector is gripped by non performing loans (NPLs), speakers yesterday said interest rates cannot be lowered for NPLs. The current level of NPLs forces interest rates to rise on an average by 1%.
Top business leaders of Dhaka Chamber of Commerce and Industry (DCCI) urged the government at a press conference at the DCCI auditorium, Dhaka, to implement its pledges of bringing lending rates down to single digits, while seeking support for developing a more business-friendly environment in attracting investments from both home and abroad.
DCCI President Osama Taseer presented the trade body’s course of action for 2019. Senior Vice President Waqar Ahmad Choudhury and Vice President Imran Ahmed were also present, among others.
As of September 2018, total NPLs in the banking sector stood at Tk99,371 crore, which was 11.45% of total outstanding loans, the highest ever in the sector’s history. Of the total default loan, industrial loans accounted for 44%, which raised serious concerns about the quality of loans disbursement.
Osama urged the government to form an independent banking commission to monitor how the banking sector operates.
“The government should also lower lending rates to single digits,” he said. “Additionally, they should also formulate policies which help commercial banks to reduce their costs of capital, thus enabling small and medium entrepreneurs [SMEs] to obtain loans at single digit interest rates.”
The business leader emphasized on intensifying monitoring of large loans and applying proper due diligence in approving loans.
“For state-owned banks, their governance structure needs to be revisited.”
Regarding the issue of value added tax (VAT) and taxes, the DCCI president said the Bangladesh’s corporate tax rate is higher than any other Asian country, while a full-fledged VAT system yet to see the light of day.
He recommended a gradual decrease in the corporate tax rate, preferably to 5%, 7%, and 10% respectively, for fiscal years 2018-19, 2019-20, and 2020-21.
“Cost saved from the reduced corporate tax rates has to be invested in skill development, infrastructure and research and development.
Osama remarked that multiple VAT rates—preferably in single digits—will benefit the economy. Meanwhile, the government has to ensure transparency and accountability in VAT collection.
Investment and infrastructure
The trade body’s statistics showed that investment as percentage of GDP reached 31.23% in FY2017-18, of which public investment amounted to 7.97% and private investment stood at 23.26%. Net foreign direct investment (FDI) inflow reached at $2.58 billion in the same fiscal year.
The DCCI president hoped a powerful “National Competitive Strategic Action Committee” under public and private initiatives will be formed to ensure private sector participation in policy formulation, which benefits trade and business of the country.
“Infrastructure development is another priority imperative for our targeted economic growth, but the slow pace of implementing infrastructural projects remain a major challenge,” he observed.
Osama said long-term financing is crucial for sustaining such projects. Bond market also needs to be made properly functional, he added.
“We will organize a day-long conference in April this year, in collaboration with local and international partners, to share some policy recommendations to make the bond market vibrant.”
Urbanization and export issues
According to a recent study, nearly 110 million people are expected to live in urban areas of Bangladesh by 2035.
“Rajuk [Rajdhani Unnayan Kartripakkha] can consult with business leaders to include their economic plans in the city’s master plan in order to maximize the business potential of Dhaka city,” Osama suggested.
He also said decentralization from Dhaka city is the key to urbanization and business expansion from economic and administrative perspectives.
“Bangladesh’s export performance so far presents signs of strength. Export concentration in the RMG sector, contributing 83% of total export earnings, has positioned Bangladesh at a new height in global RMG exports.”
Osama also stressed year-round policy advocacy and an in-depth study to formulate how to break into new markets with new products. “We should look into activities to highlight avenues for exploring non-traditional export markets.”
DCCI officials also expect the Remediation Coordination Cell (RCC), formed in the wake of the post-Accord and Alliance period, to monitor the working environment and security system of RMG factories. RCC, as an industry remediation unit, will work cooperatively to improve the working environment in factories, thus helping to increase export volume.