Country’s commercial banks contribute the most in its economic growth by providing investible funds to both the public sector and private sector, experts say.
They opine that bank credit is one of the key elements to economic growth in the developing countries like Bangladesh, providing finance in production, consumption and capital formation the banks strongly affect the growth process positively.
Data suggest that private sector credit accounted for the largest component of bank credit which is over 80 percent with industry and trade & commerce each accounting for 36 percent.
Overall investment in the country crossed 31 percent of GDP for the first time in Bangladesh’s history last fiscal year, which was happened because of huge public spending on mega infrastructure projects, now under implementation process.
In fiscal 2017-18, overall investment to gross domestic product ratio stood at 31.23 percent, which was 30.51 percent the previous year, according to data from the Bangladesh Bureau of Statistics. A study report on ‘Economic Growth in Bangladesh and the role of banking sector’, released at the Bangladesh Institute of Bank Management (BIBM) recently, mentioned that the country has come a long way in its economic growth, from a meagre $5.70 billion in 1972, the GDP increased to $285.82 billion in 2018 which however presents only around 0.50 percent of the world economy.
“The Bangladesh economy is the 42nd largest in the world in nominal terms and 31st largest in terms of Purchasing Power Parity (PPP)”, report said.
The report, prepared by Dr Barkat-e-Khoda and his team, also said the economic growth is important way to improving standards of living of people and achieving economic development. He said with acceleration of the growth of per capita income, there has been considerable progress in poverty reduction from 56.7 percent in 1991 to 24.3 percent in 2015, and now it is around 22 percent.
The report mentioned that there is a positive long-run relationship between private sector credit and economic growth in Bangladesh. The banking sector is however facing challenges that include weak management, poor governance, lack of strong leadership, non-compliance with equal ethical standard, leading to various types of banking scams such as money laundering and Non-Performing Loan (NPL).
The volume of banking sector’s trade finance has been increasing over time, in 2017 the Private Sector Commercial Banks (PCBs) share in export finance market was highest 60 percent followed by the State Owned Commercial Banks (SCB).
Referring to central bank’s data, the report mentioned that RMG sector received highest proportion of financing from banks while the import payment including imports of EPZ, increased more than two times from Tk. 148.372.00 crore during 2007-08 to Tk. 345,549.40 crore during the 2016-17. Import payment for all type cotton has increased by 2.8 times from Tk. 17109.70 crore during 2007-08 to Tk. 42826.80 crore in 2016-17.
It said banks play a major role in facilitating remittance by migrant workers. The country received higher remittance during the last fiscal year resulting from strong pick-up in global economic activities, especially in Middle East countries.
The central bank directed its effort through its annual agricultural credit program to ensure flow of credit to agriculture, rural-based off-farm activities, SME and allied sectors.
Managing Director and CEO of Standard Bank Limited, Mamun-Ur-Rashid, told Bangladesh Post that the banks contribute most in the country’s economic development.
“Among the banks the state run banks are still big players to invest in big projects of the government compared to the private sector.
State run banks have big capital and holding huge liquidity despite continuous financial loss So, they can lent big loan for development project as they have the enough exposure”, he added.