Prospect of banking sector in Bangladesh

Recently, Bangladesh bank has approved a number private commercial banks on the grounds that the new banks will help increase the quality of banking services by increasing competition in the banking sector. They will also be able to meet the unfulfilled demand for credit by the private sector whose needs have grown in line with a fast expanding economy. Banks are to facilitate all kinds of economic activities and finance many other needs of the people, in both urban and rural areas. But overcrowding of the banking sector is not at all desirable as this, instead of meeting those objectives, would create problems for the sector itself, particularly the existing operators in the sector. This might even adversely impact the vital sector of the economy in the process. Opening up of new banks on political consideration, as reported time and again, may reduce the confidence of the clients in banks as well as impair the management quality of the overall banking sector. The new comers will create an unhealthy competition in banking services, after stability of the sector and cause profitability of the existing banks to suffer.

The banking industry in Bangladesh has flourished over the years, making double-digit profit percentages, sustaining growth and surviving cut-throat competition while providing attractive returns to shareholders. However, the greed for more without befitting platform and fundamentals, brings its own challenges and questions in people’s minds. The similar incident will take place for quality employees of the existing banks. All these will lead to a greater mismatch between their credit and deposit ration and acute shortage of good bankers.

Though someone may differ, competition in Bangladesh seems to be the deadliest of all. It not only brings in positive developments but also encourages malpractice. There is competition not only from other banks but also from non-bank financial institutions (NBFI) and micro finance institutions (MFI).

The major challenges with change of regulation in that often the regulators are in a hurry to implement a sudden decision, rolling out action plans without proper research or understanding the broad implications and capabilities of the banks to comply with it. The outcome is delay in implementation, confusion among stakeholders and new techniques to bypass these regulations. This is its turn creates a non level playing field for those who comply with the regulation versus those cleverly managing the situation without having to comply.

The banking sector could be our pride and a major growth engine of the economy. Regulators are taking appropriate decisions to implement proper regulations at the right time. If the regulators and the legal system were honest then all these recurring image issues and malpractices could have been avoided.