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Bringing confidence in banking sector

“Banks to follow simple interest calculation from next FY,” Minister Kamal

Finance Minister A H M Mustafa Kamal in a bid to steady the storm hit banking sector presented some out of the box ideas including setting simple interest rate instead of compound interest rate when giving loans with a view to bringing confidence to the banking sector and boosting the business climate.

Finance Minister A H M Mustafa Kamal
Figure: Finance Minister A H M Mustafa Kamal. Courtesy: Bangla Tribune

Kamal was in a discussion with reporters after an exchange of views meeting with directors of the state-owned banks at the National Economic Council auditorium (NEC) conference room in Dhaka.

Mustafa Kamal said the government would encourage banks to offer simple interest loans instead of compound interest ones from the next financial year (FY).

No country in the world where loan interest is calculated on a compound rate, Kamal said, adding, “They follow simple rate.”

He also acknowledged that there is no bond market in Bangladesh. Which is an ultimate way to get long term financing.

“The governor has assured me that from the next year we will be able to float long-term bonds in the market,” he reassured.

At the same time, the government has decided to employ directors on the basis of their relevant knowledge. “There are some problems in the banking sector, but these are trivial — not serious.”

The problems have snowballed over the years, Kamal added.

So, the government has decided to run a special audit program in the banking sector. Through the audit the government will try to find out which loans are bad and which are good.

In the process, good borrowers would be recognized and might be extended special facilities, Kamal said.

When the entrepreneurs fall in trouble there is no exit strategy, so the government has decided to draft a bank insolvency act and form an asset management company for recovering the bad loans.

Asadul Islam, secretary to the banking division; Fazle Kabir, governor of Bangladesh Bank, and Salman F Rahman, private industry and investment adviser to the prime minister, were present at the meeting.

Representatives of the Bangladesh Association of Bankers, a platform of private banks’ directors, and the Association of Bankers, Bangladesh, a platform of banks’ chief executive officers, were also present at the meeting.

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