BB’s policy worsens the banking ecosystem

We are deeply troubled by the decision of the Bangladesh Bank to allow banks to account for unpaid loan payments as income. In accordance with the central bank’s so-called “relaxed policy”, banks were not allowed to treat borrowers as delinquent debtors if they only repaid 15% of their total installments due, and were allowed to transfer unrealized interest on 85% of loan payments. to their income, although the sums have not been paid. In reality, there is no way that the full amount of unrealized interest will be paid to the banks. Therefore, by doing this, the banks paint an unrealistic and positive picture, which is illusory.

In addition, by displaying unfulfilled loan payments as income, banks inflate their profits, thereby increasing the dividends payable to their owners and shareholders. This will drain banks’ assets on the one hand and could possibly increase their stock price on the other, even if there is no tangible reason for this to happen. It is therefore the entire banking ecosystem that is spoiled by the decision of the BB. In the short term, this move may seem like a victory for banks, but this victory will be very short-lived, as banks show increased income by cooking the books and not making real profits.

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Last year, we saw the entire global banking industry struggling because of the Covid-related shutdowns. As we see central banks around the world working hard to increase the reserves held by banks in their countries, we see the opposite happening here. Due to the policies of the Bangladesh Bank, the provisions held by banks could decline, making the sector even more vulnerable in the long run, whereas on paper it looks like everything is fine.

When it is the responsibility of regulators to ensure that the banking industry applies strict accounting methods to give borrowers, depositors, investors and shareholders an accurate picture of the state of the industry, we fail to understand why the Bank Bangladesh is doing the exact opposite, which it hopes to achieve in the long run through such policies and whether this is due to external actors influencing the central bank again, as they have so often done in the past. the past.

Over the years, we have seen the independence of the central bank deteriorate, it breaks its own rules and regulations as a result, discipline in the sector deteriorates and the stability of the sector becomes more and more questionable. This latest policy adopted by the Bangladesh Bank only adds to this instability. We can only condemn such policies by the central bank and urge it to immediately correct the trajectory for the long-term future of the sector and the economy in general.

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