Economists on Sunday said that nine new banks would push the country’s financial sector, already facing severe problems like liquidity crisis, unhealthy competition for deposit collection and lack of efficient human resources, into new challenges.
The financial market of the country is over saturated with 47 existing commercial banks and nine new banks would face stiff competition for deposit collection, former Bangladesh Bank governor Salehuddin Ahmed told New Age on Sunday.
Bangladesh Bank board of directors on Sunday approved six new banks to be set up by ruling party lawmakers and loyalists after the central bank last week had approved another three new banks to be set up by non-resident Bangladeshis.
The new banks will also not bring any good result for the common people as banking facilities are enjoyed only by a group of wealthy and privileged people.
‘The government said that the new banks were being set up on political consideration. I think the government has not taken a prudent decision,’ he said, adding that the existing banks already faced difficulties in maintaining banking norms and standards.
Salehuddin said that the new banks would also hamper BB’s activities as it would be difficult for the central bank to oversee more banks with its existing manpower.
Economist and former adviser to caretaker government AB Mirza Azizul Islam said that in the context of Bangladesh economy and its size, there was no need for setting up new banks while the country already has 47 commercial banks.
The size of gross domestic products, per capita income and savings capacity of people are not favorable for allowing another nine new commercial banks, he said.
The banks, existing and new ones, will engage in unhealthy competition for attracting clients and collecting deposits which will reduce the volume of business of the banks in general.
The banks might also increase the lending rate for maximizing their profits as the tradition says that when volume of business decreases, the entrepreneurs increase price of products, he said.
The existing banks have been sufferings from liquidity crisis and the new banks entering in the market will intensify this crisis, he added.
In this context, he said that the timing of allowing new banks in the market was not appropriate.
Mirza Aziz sees no chance to evaluate the impact of nine new banks on the grounds of economy and finance, saying that finance minister Abul Maal Abdul Muhith has already described the decision as political one rather than economic and financial one.
Former BB deputy Khondoker Ibrahim Khaled said that the decision of awarding new banks would not bring any good results as existing 47 banks were enough. ‘It will have an adverse effect on money market as the banks will focus on syndication rather than becoming competitive,’ he said.