Medicines for overcoming upcoming financial crisis of Banking sector


Muslim umma celebrated this Eid-ul-Fitr beyond the traditional smells, family outings, meeting external friends, traveling, and social fun gathering amid the COVID-19 shutdown. It was no matters how we celebrated the EID, it is matter of concern how will act upon the upcoming period of economic downturn. Government of Bangladesh announced one lac crore taka stimulus package for uplifting at least seven most vulnerable sectors distributed and implemented through banks by sourcing from Banks own funds, timely and crucial decision. As per Bangladesh Bank guidance, Banks have to implement the stimulus packages for stemming our economy smoothly, might face obstacle due to liquidity crises.

Bangladesh Bank should undertake some bailout packages immediately to restricting financial sector turmoil.
1. Bangladesh Bank may reduce cash reserve ratio (CRR) to 1% instead of present CRR 4% on daily basis, should be allowable to maintain by using any types of currency and statutory liquidity reserve (SLR) should reduce to 7% instead of present SLR 13%.

2. Cash Reserve Ratio (CRR) and statutory liquidity reserve (SLR) should be exempted for offshore banking for enhancing foreign exchange business at least for next two years.
3. Bangladesh Bank may reduce existing repurchase agreement (repo) rate for decreasing funding costs from central bank when it is required to accept by any bank.
4. Banks should not give any cash dividend for next two years, rather giving stock dividend might permit based on capital adequacy.

5. Bangladesh Bank may introduce Zero (0) coupon bond for banks amounting 500 crore each for total 10,000 crore.
6. Government may stop to issue new Savings Instruments (Sanchayapatra) for at least next two fiscal years.
7. Bangladesh Bank may reduce Bank rate to 2% instead of present 5%.
8. Bangladesh Bank may provide tk. 5000 crore loan depending upon assets quality of the bank.

9. Government may introduce a Troubled Asset Relief Program (TARP) in the next budget for purchasing Bad debts from the banks as such a program was introduced by United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President George W. Bush on October 3, 2008. It was a component of the government’s measures in 2008 to address the subprime mortgage crisis.

10. Bangladesh bank should give immediate guidance to banks for using financial derivatives and financial techniques to reduced operating costs. Bangladesh Bank should give a descriptive circular that Banks can realize the true factors to overcome the situation. A bank can not overcome the economic recession by firing employees and cutting employees salaries and benefit, rather it will only ruin the sector by creating unrest, and might cause bad international bank ratings. If we have to absorb poor international bank ratings, than, Bangladesh will loss FDI and will be costly foreign bills endorsement and international payments.

Considering the current situation, earnest request to authorities to take necessary timely economic bailout plans immediately.

Writer: Mohammad Nure Alarm, Banker