Our banking and financial systems need to be made more transparent
The national budget for 2018-19 has set an incentive to reward corporations with reduced tax rates for their transparency.
Publicly traded banks will be now taxed at 37.5 %, which is 2.5% less than the banks that are not listed with any stock market yet.
Publicly traded banks are more regulated due to their very nature, which is one of the key pillars for consumer confidence. The government will be reducing taxes as a pre-condition in order to impose more clarity in business.
Better checks and balances in place which would support business growth can cause a decline in our chronic corruption.
A significant reduction in corruption within both public and private sectors can earn more revenues to subsidize a bigger corporate tax cut and may even cause Bangladesh to become more competitive when it comes to FDI among the South and Southeast Asian countries.
The Bangladesh government has been working on stabilizing the banking sector for a while now.
This is a common phenomenon in the region with regards to economic progression. India, despite all of the improvements they have made, that we are aware of, has one of the worst banking sectors in the world.
In a recent report by India Times, India has $210 billion in bad loans, in a $1.7tn banking sector. India’s loan default rate is the second highest in the world, after Brazil. We certainly don’t want India to fail. However, we must prepare and equip the Bangladesh market to attract more FDI, should investors start looking for alternatives to India.
So, how is the 2018-19 budget going to impact banking sectors for the better?
No matter how good it sounds, solely cracking down on failing banks may not be the best way to handle the overall banking sector, as banking is all about public confidence. The government has already taken an excellent initiative by making key banking statistics available to the public through Bangladesh Bank’s website.
That is the first step.
There have also been many structural advances to curb corruption, even though many would argue that it is not enough. Hence, the budget seems to be clearly designed with the objective to encourage clarity in the banking business. If you are the bank executives, and you have no plans to go public in order to take advantage of the 2.5% corporate tax cut, it’s on you and your board now to explain the rationale to your investors as to why the bank is not in agreement to going public.
The government is not rushing in to quickly fix the banking system. Instead, it is using financial tools at its disposal to keep consumer confidence higher and avoid any panic. Developing countries’ currencies have been strengthening in recent months, and many emerging economies such as India are becoming less attractive.
This is an opportunity for Bangladesh to shine with stability in the banking and financial systems, and easing operating businesses. Last but not least, if the mentioned strategy is mirrored in all processes of the economy and governance, increased transparency will yield a much needed holistic national development.
Mazher Mir is a financial adviser for Morgan Stanley, USA.