Is MPS banking and macro economy friendly?

The incremental cost borne due to high propensity of expensive savings certificate purchase and investment privileges a small section of investors at the cost of banking sector resentment and dispute

MPS is the predefined forecast of macro-economic indicators especially the pre-defined estimation of core monetary indicators of Bangladesh, trend and their potential macro-economic development outlook. The Bangladesh bank usually twice in a year disclosed the monetary policy highlights together with brief periodic performance. The Central Bank has considered this MPS as cautionary and non expansionary, growth and employment friendly but critically assessed of the MPS for aforesaid justification. The recently wrapped MPS of FY 2017 reported that the Broad money growth in FY 2017 recorded much lower than 15.5 percent target and private sector credit growth recorded at 16 percent and 12 percent public sector growth which are also lower than given target disclosed while the forecast for MPS1 for FY 2018 for the period of July to December 2017. Likewise earlier, Bangladesh Bank always efforts to present a clean and futuristic picture of fiscal, monetary and capital market scenario backed by a strong macro economic growth. The objective of an ideal MPS is to keep minimum the inflation and optimum the GDP growth as well as the optimum overall macroeconomic condition. Since most of the elements and factors in the MPS are interconnected, the individual factor performance depends on other exogenous factors to greater extent. The key factors which are influential on overall macro-economic performance are credit and borrowing interest rate, growth rate and inflation in the context of local trade whereas exchange rate in global trade. There are other means and ways whereby the external trade and internal trade performance can be monitored. The Bank of England has always substantially met the purpose of MPS in terms of inflation reduction within 2 percent from and played role in economic growth through enforcing various strategic monetary tools whereas the Reserve Bank of India efforts to lower within 4 percent.

The borrowing interest rate in banking sector was marked consistent decline from March to May 2017 and Deposit interest decline for the same period. This trend indicated is to encourage the personal and institutional borrowing but the realized borrowing and target for FY 2018 in MPS look discouraging. On the other hand, the import LC recorded continuously lowering trend from March to May 2017 resulting slow growth in private sector credit in manufacturing business and no positive impact in current balance of Balance of Payment. During March and April 2017, the Capital machinery recorded slump by 22 percent which is apparently an adverse impact to our local manufacturing industrial base expansion.    

Broad money growth in May 2017 was recorded 11.56 percent higher than that of April 2016 which helped the Inflation to keep below 5.44 percent in last MPS. However, the point to point Inflation rate has continuously increased over last three months due to non food inflation item growth as primary energy natural gas price has series of tariff rise within last quarter which significantly caused rippled effects on almost all energy related process and products from daily essential to business products alarmingly pushing the cost of daily lives and doing businesses. The Growth was targeted 7.4 percent which is strategically higher than immediate past target but the current and traditional public and private credit growth may not commensurate the effective economic mobilization and employment growth to achieve the desired economic growth.

The unchanged status of immediate past MPS and this MPS in rate of lending and borrowing rate, Repo and reverse repo rate at 6.75 and 4.75% may not seem improve overall credit expansion scenario of Bangladesh by the end of this this MPS as the lower private sector credit sector is not subject to repo and reverse repo rate. Banking sector is overburdened with irrelevant operational and maintenance cost which do not allow the most of the scheduled banks to keep lower the cost of capital backed by favourable repo and reverse repo. The Credit and deposit ratio in scheduled banks are seen around 99 percent but ideal is below 90 percent. The higher the credit and deposit ratio, the riskier that banking operation is.

The central bank has lost supervisory control across commercial banks and MPS has no clear direction in brining discipline in cost management of private banks. The incremental cost borne due to high propensity of expensive savings certificate purchase and investment privileges a small section of investors at the cost of banking sector resentment and dispute. The higher rate of return against savings certificate is a threat to banking, capital and market development as a whole. The MPS has not outlined the importance of treasury bond market development for long term capital market sustainability. The BB has got higher Cash reserve ratio to 6.5 percent and opaque treasury bond selling strategy which will not assist the credit expansion principle at all though excess reserve of liquidity is on escalation.

The National budget declared for FY 2018 also allocates largest amount in expenditure budget in interest and saving around TK42000 crore to compensate the Fixed and expensive FDR, pension and family saving certificates. This sort of expenditure attitude is against the efficient monetary and fiscal planning of such a government of Bangladesh. Once fiscal deficit in current budget tensed Government, the unilateral budget allocation in interest in dead expenditure sector is very unhealthy in our economic context. The liquidity asset of banking sector is heavily on rise and meanwhile the asset hit TK2.82 trillion as of December 2016 but the disposable credit remains limited which engenders burden to the banking sector. In the wake of growing NPL rate, no focused measure was taken to decline the NPL growth. The relentless growth in NPL to TK. 734 Billion create tax payers incidence in our economy. The fiscal budget made additional allocation of recapitalization fund of TK. 2000 Crore in public banking sector against growing NPL culture. Engagement of observers from central bank in commercial banks cannot largely change the NPL culture nor qualitative development in banking sector outstanding spree.

As per BB report, classified loan at 10.9% of total loans and net classified at 2.9% recorded. Till December 2016, TK 66865 crore was total classified advance in 2016. The classified loan is equivalent to net Non performing/bad loan. Both higher net classified 2.9% and classified loan 10.9% are alarming for the economy as international standard of NPL is below 5%. Though SME, Industry and agriculture had large borrowing growth respectively by 16.03 %,15.73% and 10.43% but the classified loan growth had around 34.3 percent against three sector loan but no clear significance for agro SME development was noticed. REER(Real effective exchange rate) of Taka is weak against all leading currencies including US Dollar in the world. But the benefit of low exchange rate and strong Taka are not gained as export diversity has no momentum in recent years. As Pound sterling is a weak currency after BREXIT, it affects our export earning revenue as well reducing the volume of export in UK market due to weak economic capacity of British mass. Post Brexit trade and Post US election trade deficit and trade relation environment efforts were invisible in the MPS. Bangladesh Bank stated Capital market runs smooth though no boom noticed and no measures and instructions were made to BSEC and Banks operating in capital market except overseeing their reserve limit. The capital market stimulus plan was not taken at all in MPS to support the recovery of capital market. The tumbling remittance shortage by 14.5 percent affects adversely the Balance of payment record and this trend is apparently alarming for our remittance led FE(Foreign exchange) reserve the economy as it symbolizes the dwindling BoP health and this is worsened by the low and strategic export revenue fall recorded lowest within last decade. Strategic export retention stimulus package was not embedded in the declared MPS too.

The MPS has not given any focused indication on proposed sovereign fund development nor FDI increase for the massive physical Infrastructure development project needs. MPS stated policy support for financing of farm/non-farm MSME output initiatives, with realigned greater emphasis on the employment focused manufacturing and service sub sectors but record of BBS and ILO showed the employment growth is much lower with estimated 4 percent growth over last two years and GDP growth also does not commensurate the actual employment growth.

The recent and consistent macroeconomic management underpinned by 7 percent plus economic growth sets far reaching economic vision for Bangladesh as economic graduation by 2021, higher middle income country growth featured by $6000 Per capita income and double digit growth followed by high income developed economy by the Year 2041. These critical game changer and trend setting growth trajectory are incredibly pursuing Bangladesh to new era of economic emancipation backed by consecutive and well-defined MPS. The debate is hovering whether the revealed MPS is capable and vibrant enough to robustly facilitate the banking and capital market spur and 16.2 percent private sector credit boom as well as enable our economy to battle against all challenges ahead of our growth and FDI hungry economy to secure desired low inflationary, credit stimulating but sustainable economic growth in long run.  

Considering the MPS the major blue print of banking sector led economic advancement, the recent MPS is unlikely to help this underperforming banking sector to ensure some proper reforms and afford to steer banking industry leading to passionate and determined industry friendly economic growth implications in near future as MPS lacks definitive objective in deed.  

Research Fellow,R&D, Dept. DCCI

Is MPS banking and macro economy friendly?

The incremental cost borne due to high propensity of expensive savings certificate purchase and investment privileges a small section of investors at the cost of banking sector resentment and dispute

MPS is the predefined forecast of macro-economic indicators especially the pre-defined estimation of core monetary indicators of Bangladesh, trend and their potential macro-economic development outlook. The Bangladesh bank usually twice in a year disclosed the monetary policy highlights together with brief periodic performance. The Central Bank has considered this MPS as cautionary and non expansionary, growth and employment friendly but critically assessed of the MPS for aforesaid justification. The recently wrapped MPS of FY 2017 reported that the Broad money growth in FY 2017 recorded much lower than 15.5 percent target and private sector credit growth recorded at 16 percent and 12 percent public sector growth which are also lower than given target disclosed while the forecast for MPS1 for FY 2018 for the period of July to December 2017. Likewise earlier, Bangladesh Bank always efforts to present a clean and futuristic picture of fiscal, monetary and capital market scenario backed by a strong macro economic growth. The objective of an ideal MPS is to keep minimum the inflation and optimum the GDP growth as well as the optimum overall macroeconomic condition. Since most of the elements and factors in the MPS are interconnected, the individual factor performance depends on other exogenous factors to greater extent. The key factors which are influential on overall macro-economic performance are credit and borrowing interest rate, growth rate and inflation in the context of local trade whereas exchange rate in global trade. There are other means and ways whereby the external trade and internal trade performance can be monitored. The Bank of England has always substantially met the purpose of MPS in terms of inflation reduction within 2 percent from and played role in economic growth through enforcing various strategic monetary tools whereas the Reserve Bank of India efforts to lower within 4 percent. The borrowing interest rate in banking sector was marked consistent decline from March to May 2017 and Deposit interest decline for the same period. This trend indicated is to encourage the personal and institutional borrowing but the realized borrowing and target for FY 2018 in MPS look discouraging. On the other hand, the import LC recorded continuously lowering trend from March to May 2017 resulting slow growth in private sector credit in manufacturing business and no positive impact in current balance of Balance of Payment. During March and April 2017, the Capital machinery recorded slump by 22 percent which is apparently an adverse impact to our local manufacturing industrial base expansion. Broad money growth in May 2017 was recorded 11.56 percent higher than that of April 2016 which helped the Inflation to keep below 5.44 percent in last MPS. However, the point to point Inflation rate has continuously increased over last three months due to non food inflation item growth as primary energy natural gas price has series of tariff rise within last quarter which significantly caused rippled effects on almost all energy related process and products from daily essential to business products alarmingly pushing the cost of daily lives and doing businesses. The Growth was targeted 7.4 percent which is strategically higher than immediate past target but the current and traditional public and private credit growth may not commensurate the effective economic mobilization and employment growth to achieve the desired economic growth. The unchanged status of immediate past MPS and this MPS in rate of lending and borrowing rate, Repo and reverse repo rate at 6.75 and 4.75% may not seem improve overall credit expansion scenario of Bangladesh by the end of this this MPS as the lower private sector credit sector is not subject to repo and reverse repo rate. Banking sector is overburdened with irrelevant operational and maintenance cost which do not allow the most of the scheduled banks to keep lower the cost of capital backed by favourable repo and reverse repo. The Credit and deposit ratio in scheduled banks are seen around 99 percent but ideal is below 90 percent. The higher the credit and deposit ratio, the riskier that banking operation is. The central bank has lost supervisory control across commercial banks and MPS has no clear direction in brining discipline in cost management of private banks. The incremental cost borne due to high propensity of expensive savings certificate purchase and investment privileges a small section of investors at the cost of banking sector resentment and dispute. The higher rate of return against savings certificate is a threat to banking, capital and market development as a whole. The MPS has not outlined the importance of treasury bond market development for long term capital market sustainability. The BB has got higher Cash reserve ratio to 6.5 percent and opaque treasury bond selling strategy which will not assist the credit expansion principle at all though excess reserve of liquidity is on escalation. The National budget declared for FY 2018 also allocates largest amount in expenditure budget in interest and saving around TK42000 crore to compensate the Fixed and expensive FDR, pension and family saving certificates. This sort of expenditure attitude is against the efficient monetary and fiscal planning of such a government of Bangladesh. Once fiscal deficit in current budget tensed Government, the unilateral budget allocation in interest in dead expenditure sector is very unhealthy in our economic context. The liquidity asset of banking sector is heavily on rise and meanwhile the asset hit TK2.82 trillion as of December 2016 but the disposable credit remains limited which engenders burden to the banking sector. In the wake of growing NPL rate, no focused measure was taken to decline the NPL growth. The relentless growth in NPL to TK. 734 Billion create tax payers incidence in our economy. The fiscal budget made additional allocation of recapitalization fund of TK. 2000 Crore in public banking sector against growing NPL culture. Engagement of observers from central bank in commercial banks cannot largely change the NPL culture nor qualitative development in banking sector outstanding spree. As per BB report, classified loan at 10.9% of total loans and net classified at 2.9% recorded. Till December 2016, TK 66865 crore was total classified advance in 2016. The classified loan is equivalent to net Non performing/bad loan. Both higher net classified 2.9% and classified loan 10.9% are alarming for the economy as international standard of NPL is below 5%. Though SME, Industry and agriculture had large borrowing growth respectively by 16.03 %,15.73% and 10.43% but the classified loan growth had around 34.3 percent against three sector loan but no clear significance for agro SME development was noticed. REER(Real effective exchange rate) of Taka is weak against all leading currencies including US Dollar in the world. But the benefit of low exchange rate and strong Taka are not gained as export diversity has no momentum in recent years. As Pound sterling is a weak currency after BREXIT, it affects our export earning revenue as well reducing the volume of export in UK market due to weak economic capacity of British mass. Post Brexit trade and Post US election trade deficit and trade relation environment efforts were invisible in the MPS. Bangladesh Bank stated Capital market runs smooth though no boom noticed and no measures and instructions were made to BSEC and Banks operating in capital market except overseeing their reserve limit. The capital market stimulus plan was not taken at all in MPS to support the recovery of capital market. The tumbling remittance shortage by 14.5 percent affects adversely the Balance of payment record and this trend is apparently alarming for our remittance led FE(Foreign exchange) reserve the economy as it symbolizes the dwindling BoP health and this is worsened by the low and strategic export revenue fall recorded lowest within last decade. Strategic export retention stimulus package was not embedded in the declared MPS too. The MPS has not given any focused indication on proposed sovereign fund development nor FDI increase for the massive physical Infrastructure development project needs. MPS stated policy support for financing of farm/non-farm MSME output initiatives, with realigned greater emphasis on the employment focused manufacturing and service sub sectors but record of BBS and ILO showed the employment growth is much lower with estimated 4 percent growth over last two years and GDP growth also does not commensurate the actual employment growth. The recent and consistent macroeconomic management underpinned by 7 percent plus economic growth sets far reaching economic vision for Bangladesh as economic graduation by 2021, higher middle income country growth featured by $6000 Per capita income and double digit growth followed by high income developed economy by the Year 2041. These critical game changer and trend setting growth trajectory are incredibly pursuing Bangladesh to new era of economic emancipation backed by consecutive and well-defined MPS. The debate is hovering whether the revealed MPS is capable and vibrant enough to robustly facilitate the banking and capital market spur and 16.2 percent private sector credit boom as well as enable our economy to battle against all challenges ahead of our growth and FDI hungry economy to secure desired low inflationary, credit stimulating but sustainable economic growth in long run. Considering the MPS the major blue print of banking sector led economic advancement, the recent MPS is unlikely to help this underperforming banking sector to ensure some proper reforms and afford to steer banking industry leading to passionate and determined industry friendly economic growth implications in near future as MPS lacks definitive objective in deed. Research Fellow,RD, Dept. DCCI