Bangladesh Bank wants ‘effective’ supervision of stimulus fun

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Bangladesh Bank has recommended “effective” supervision of the coronavirus stimulus packages to stop defaulters from borrowing the funds.

In its January-March report, the central bank also said the implementation of the packages coupled with monetary and fiscal policies may mitigate the downside risks of growth outlook and macro stability.  

“However, effective supervision is needed so that loans beneath the stimulus package might go to eligible entrepreneurs only,” Bangladesh Bank said in the sydney.

The government has announced 19 stimulus packages worth more than Tk 1 trillion to counter the monetary slowdown created by the pandemic. These packages are planned for industry owners as loans from banks. The government can pay half the interests.

The central bank in addition has taken steps to make certain that the banks usually do not face liquidity crisis. But a slow rate of implementing the packages left businesses frustrated. The Federation of Bangladesh Chambers of Commerce and Industry urged the banks to disburse the loans quickly.  

Bangladesh Bank had also asked the banks to distribute these packages within a set timeframe carrying out a meeting between your chief executives of most banks and Governor Fazle Kabir on Jul 2. It wants the banks to disburse most the funds in July and wrap the task by August.

“The implementation of the stimulus package will not reflect the enthusiasm with which it was announced. That’s why the central bank has reminded the banks repeatedly,” said Khondkar Ibrahim Khaled, former deputy governor.
Too little the banks’ willingness in disbursing loans to small and medium enterprises or SMEs also worries Khaled. “But they are the kinds who suffered more losses through the pandemic. We need to make sure the banks provide loans to SMEs,” he added.

Ahsan H Mansur, executive director of Policy Research Institute, said: “The banking sector had not been doing too well, and the COVID-19 pandemic has made their situation worse. Almost all of the banks will not be able to make profits this year, and it will be minimal for a few banks which do.”

Businesses have defaulted on loans of trillions of takas, Mansur said. “If the stimulus package loans suffer defaults, the banks will maintain trouble.”

“Therefore the stimulus packages should be implemented under strict supervision,” he added

MIXED PICTURE

Economic activities portrayed a mixed picture in the 3rd quarter of FY20 amid global supply disruptions and looming monetary recession originating from the global outbreak of the COVID-19, Bangladesh Bank said.

As reflected in several indicators, activities in the agriculture and industry sectors remained “firm” in the quarter, while activities in the service sector appeared “somewhat moderated”.

On the demand side, weak private credit growth, that was 8.9 percent, falling import demand, which dropped by 8.8 percent, and decelerating remittance inflows with 0.2 percent growth together also pointed to “some moderation” of monetary activities in this quarter.

Substantial government borrowings from banks, plus a decline in deposit growth, caused partly by the low interest rate on deposits and partly by weak remittance inflows, led to some liquidity tightening in the banking system.

“Consequently, interbank money market rates manifested an upward movement, although the interest rates on deposit and lending kept falling,” the central bank said.

The current account balance deficit widened to $871 million from $774 million in the last quarter, mainly because of a decline in remittance inflows and export earnings inflicted by the pandemic-driven impaired external demand.

Import payment fell by 6.74 percent year on year with a broader base due partly to export slowdown and partly to interruption of production in China - a substantial source of imports.

On the fiscal side, faster government expenditure with 21.9 percent growth against a moderate revenue collection with 6.87 percent growth led to an increased budget deficit, rising to Tk 353 billion in the 3rd quarter from Tk 318 billion in the next quarter. Of this deficit, about 55 percent was met from foreign sources in the third quarter.

Domestic economical activities are “more likely to moderate” due to a nationwide shutdown in the April-May period, combined with the slowdown in export and import growth.

The sharp contraction of global economical growth owing to the COVID-19 pandemic, uncertainty in the recovery of growth in major economies, continued supply chain disruptions, and sluggish global commodity prices will probably dampen the growth outlook in FY20.

The banking sector is likely to play a larger role to channel funds to the economy to keep growth momentum in coming quarters.

To ensure adequate liquidity in the bank operating system, Bangladesh Bank undertook several initiatives. Chances are that banks have to face many challenges, such as for example maintaining asset quality, implementation of 9 percent interest cap and recovery loan amid the fallout of the COVID-19 pandemic.

To ensure adequate liquidity in the bank operating system, Bangladesh Bank reduced CRR and scaled up refinance for CMSME, large industrial unit and agriculture. 
Source: https://bdnews24.com

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