Depositors losing trust in banks

Of the many vulnerabilities that the country's banking sector is exposed to, its acute liquidity crisis is one. Tightening of money supply as part of the central bank's contractionary monetary policy, crisis in the forex market, slow pace of loan recovery, rising amount of bad loans, purchase of government bonds and securities by people and so on are the commonly discussed reasons for liquidity crunch in the banks. But over and above all these issues, there is yet another element that has factored in to deepen the bank's liquidity crisis. It is that the members of the public seem to have lost their interest in keeping their money in banks. As a result, banks are being forced to borrow money from the central bank to carry out their day-to-day business. The widespread violence and destruction that shook the nation in the wake of the students' movement for quota provision in government service has again been instrumental in making the public distrustful of the banking service. For it is during time of social unrest and crisis that people need money most to meet emergencies. But the complete internet shutdown for five consecutive days from July 19 to July 23, brought banking transaction to a complete halt. As the internet blackout came without any prior notice, so did the shutdown in the banking service.

To the members of the public, it was totally irresponsible on the part of the banks. Even the ATM booths went dysfunctional. But the banks had nothing to do either as the internet service was not under their control.  The enforcement of curfew by the government to restore public order made matter worse. Nothing like this happened within the living memory of many who are below 50. Small wonder that there was a desperate rush at the banks and ATM booths on July 24, when the internet service hesitantly returned. It could be learnt that to meet the demands of some 30 cash hungry commercial banks, the Bangladesh Bank (BB), lent over Tk255 billion in cash to them. The commercial banks conducted their normal banking service with this borrowed money. Why did the banks have to turn to the BB for cash? The simple answer is that they did not have enough cash in their vaults to meet the demands of their depositors. People keep their money in banks for convenience and safety. But when the banks fail to serve them in times of need, let alone during serious emergencies, the public might then ask, what is the use of keeping their money in banks?

So, massive borrowing from the central bank to carry out normal banking is not a healthy sign for the banking sector. Neither is it safe for the central bank to continue doing so. For the central bank at a stage will be forced to print money against the advice of the International Monetary Fund (IMF) to help the commercial banks operate. The central bank has reportedly been doing so already to the detriment of its own policy of keeping money supply under control. But high-octane newly printed money will only defeat that purpose. It is indeed a recipe for disaster as continuation of this practice could pave the way for hyperinflation, a situation that the banking regulator must avoid under any circumstances. According to reports, on June 20 last, the bank notes issued by the central bank in the country was worth over Tk3.275 trillion. This was the highest number of bank notes ever issued in the country. Worse yet, the overwhelming portion, about 95 per cent, of the bank notes are circulating outside the banking system.

Obviously, the latest disruption in the banking service has further damaged public trust in the banks. The umpteen cases of looting of banks in connivance with top bank executives including the directors of private banks and failure, in most cases, of the banking regulator and the government to hold those looters and bank directors to account, has only contributed to further erosion of the public's trust in the banking system.  The banking regulator has not been able to exercise its authority to put an end to the culture of inside-robbery in the banking sector, not to mention the pervasive culture of delinquency by the holders of non-performing loan accounts. How long are the common people going to stand this free-for-all in the banking sector? Some people are becoming billionaires not by doing any business, but by just looting public money kept in the banks! The common depositors cannot be blamed if they decide to withdraw their money from banks. It is, as it were, a return to the pre-banking era.

This does not simply pose a mortal risk to the banks alone. It also poses a danger to society itself. If the common depositors turn their back on the banking system, where are they going to save their money? By keeping it in their own homes? But that is yet another recipe for disaster because it will be an open invitation to robbers and thieves. The matter is going far beyond the jurisdiction of the banking regulator.

To make the matter worse, many expatriate workers reportedly were campaigning during internet disruptions against sending their remittance through the banking channel. If true, that's real bad news not only for the banking sector, but also for the country's foreign exchange reserves. After the very low record of remittance receipt in March this year, which was below two billion (actually, US$1.99billion plus), the highest ever record of remittance receipt in the last 47 months was in June at US$2.54 billion plus. But till July 24, the receipt recorded was a mere US$1.5 billion. Will the situation improve with resumption of the internet service?

Let's keep our fingers crossed that things may improve soon.

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