Kamal for simple interest rate instead of compound
Finance Minister AHM Mustafa Kamal has come up with several ideas including setting simple interest rate instead of compound interest rate when giving loans with a view to bringing confidence to the banking sector and boosting the business climate.
“Our banks set compound interest rate in giving loans but this is an obstacle for improving business,” Kamal told reporters after a meeting with chairpersons and directors of all banks at the capital's National Economic Council auditorium.
The compound interest rate is not used in any country in the world, he said. Simple interest is based on the principal amount of a loan or deposit, while compound interest is based on the principal amount and the interest that accumulates on it in every period.
The finance minister has a plan to run a special audit in the banking sector, draft an insolvency act and form an asset recovery company.
At the same time, the government has decided to employ directors on the basis of their relevant knowledge. “There are some problems in the banking sector, but these are trivial -- not serious.”
The problems have snowballed over the years. “These problems were not created in the last three, five or seven years but they have evolved over the years. We should address the problems now.”
One of the problems is the banks' messy balance sheet. “If we can't clean our balance sheet, how will we set our future plans?”
So, the government has decided to run a special audit programme in the banking sector.
Through the audit the government will try to find out which loans are bad and which are good.
In the process, good borrowers would be identified and might be extended special facilities, Kamal said.
The government will take action legally against the bad borrowers and try to recover the loans. However, the government does not want to send them to jail or shut down their businesses to recover the money.
“When the business is open a lot of people get the chance to continue with their jobs -- that impact is enormous. Those who are talking too much are not creating any jobs.”
Entrepreneurs do business by taking huge risks and the country has been witnessing more than 7 percent growth rate in the last few years.
“If the banking sector was in such serious problem, how was the growth rate achieved?”
When the entrepreneurs fall in trouble there is no exit strategy, so the government has decided to draft a bank insolvency act and form an asset management company for recovering the bad loans.
If a company of an entrepreneur falls on hard times, his/her other companies are also deprived of regular benefits. “So good companies are also dragged into the mess -- this is illogical.”
The finance minister will hold interviews for the directorial posts in state banks so that informed individuals assume the position in the boards.
Asadul Islam, secretary to the banking division; Fazle Kabir, governor of Bangladesh Bank, and Salman F Rahman, private industry and investment adviser to the prime minister, were present at the meeting.
Representatives of the Bangladesh Association of Bankers, a platform of private banks' directors, and the Association of Bankers, Bangladesh, a platform of banks' chief executive officers, were also present at the meeting.
