Banks call for measures in budget to lessen their load
Banks have urged the federal government to take a number of measures in the upcoming budget to protect the banking sector from the ongoing financial meltdown.
Lenders are now in mired a bad situation and the situation will worsen in the days ahead as there is absolutely no ray of hope of a V-shaped financial recovery given the blistering spread of coronavirus.
A V-shaped recovery implies that the economy bounces back quickly to its baseline prior to the crisis, without hiccups on the way.
The government should take steps to help businesses so that they are able to recover quickly which will subsequently put a positive effect on the financial health of banks, lenders said.
"The government should cut the source tax on the depositors' income from the fixed and deposit pension schemes," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
Depositors now pay 15 % tax on the profit stemming from the savings amount if indeed they don't have a tax identification number (TIN). But the payable tax is 10 per cent on the profit if savers have the TIN.
The tax ratio should be cut so that depositors feel safe to keep their funds in banks, which will fortify the financial health of lenders aswell, said Rahman, also the recent past chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.
Banks' capacity to give out loans would expand if indeed they could mobilise more funds from people, he said.
The majority of lenders are installing IT software and hardware as part of their proceed to enhance digital solutions for both credit and deposit products to tackle the pandemic.
The government should decrease the tax on IT equipment to an excellent extent to increase the ongoing digital banking programme.
"This will help increase the popularity of cashless transaction in the times ahead," Rahman said.
The tiny and medium enterprises should be offered incentives in order that they can continue businesses bypassing the ongoing crisis. The enterprises that will not sack employees will be enlisted for support.
The upcoming budget should give a merger and acquisition policy for banks as the financial health of lenders will worsen due to the economic fallout, Rahman said.
The government should also slice the corporate tax for banks as the ongoing financial recession will erode the profitability in the banking sector, he added.
A certain part of corporate tax ought to be reduced for at least 3-4 years given the gravity of the pandemic-stricken economy, said Md Arfan Ali, managing director of Bank Asia.
The income of banks will decrease drastically because they have implemented the 9-per cent interest on lending, he said.
The government will need to borrow heavily from the banking sector to manage its deficit financing in the wake of the revenue shortfall.
However the cash-strapped banking sector would get a respite from the problem if the federal government keeps the onus on the central bank to control the required funds, Ali said.
The government should not impose any extra tax on the banking sector for another fiscal year, said Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh.
"We have to understand that default loans in the banking sector will increase in the months to come which will reduce the total amount sheet of banks."
Defaulted loans hit Tk 94,313 crore at the end of 2019, up 0.42 % year-on-year, according to data from the Bangladesh Bank.
The savers, whose deposits are up to Tk 100,000, should be rebated from the excise duty as they have been in a far more stressed situation compared to the other segments of the society, Bijoy added.
The federal government should avoid imposing a corporate tax on provisioning, which banks keep against their default and unclassified loans, said Emranul Huq, managing director of Dhaka Bank.
Lenders aren't permitted to take pleasure from the provisioning as income until they recover the defaulted loans.
"If lenders are allowed to do so, the liquidity base in the banking sector will improve which will help them fight off a financial meltdown."
