The economy chugged along amid the pandemic thanks to banks

Banks were already having sleepless nights when the year started. 

And it was over the implementation of the single-digit interest rate on loans from April, an instruction that came straight from Finance Minister AHM Mustafa Kamal.

The diktat effectively broke down the market mechanism for funds, meaning the banks’ profit were poised to take a hit as it would squeeze their interest income.

Just as the banks were working out how the new interest rate mechanism would work, on came the coronavirus, opening a whole new can of problems for them.

Other than setting themselves up for a mountain of soured loans in the not-too-distant future, the banks were tasked with delivering the government’s stimulus packages amounting to Tk 1 lakh crore announced to prop up the economy from hard landing for the pandemic.

“All in all, we have had a challenging year,” said Emranul Huq, managing director and chief executive officer of Dhaka Bank. 

The fears over the interest rate cap have dissipated owing to the central bank’s expansionary monetary policy.

Earlier in July, with the view to steering the economy away from a steep downturn, the Bangladesh Bank had rolled out a vastly expansionary monetary policy for fiscal 2020-21.

That has now left banks sitting on excess liquidity of about Tk 2 lakh crore. 

At the same time, the demand for credit from businesses, understandably, has fallen drastically.

At the end of November, private sector credit growth stood at 8.2 per cent, the lowest in recent years and 6.6 percentage points lower than the 14.8 per cent target set for fiscal 2020-21.

“This means, the new year would be equally challenging,” Huq said, adding that if the vaccine is effective, the businesses and economy will return to normal within the next three months. 

Meghna Bank Managing Director Sohail RK Hussain echoed the same.

“This year was nothing like ever before for banks. The first four to five months of the year was very difficult for us due to the lending rate cap by the central bank and the countrywide shutdown.”

The new year is a bag of uncertainty, he said.

Once the loan moratorium facility, which was provided this year to help the companies fight the economic fallout of the pandemic, is lifted, the soured loans might hit the roof.

“Banks should increase their capital base to prepare for that scenario,” he added. 

At the end of September, the banking sector’s total default loans stood at Tk 94,440.5 crore, Tk 1,676.2 crore less than in the preceding three months, according to the data from the BB.

The pandemic though gave banks the incentive to finally embrace technology wholeheartedly.

“The pandemic has taught us digital banking -- this was a positive side,” said Selim RF Hussain, MD and CEO of BRAC Bank.

Banks should welcome digital banking and invest a lot in IT infrastructure and digitalisation for future banking business. 

“Those banks who can't keep pace with the times of digital banking will drop out of the banking business in the future.”

In the last one year, Brac Bank’s online transactions soared 21 per cent. 

“Last year was the big boost for digital banking.”