In May, Bangladesh experienced a significant decline in remittance inflows, with a drop of 10.27% compared to the same period last year. The primary reason behind this decrease was the higher exchange rate of the dollar in the open market, which tempted expatriates towards hundi, an informal cross-border money-transfer method.
As per data from the Bangladesh Bank, expatriates sent $1.69 billion through the formal banking channel in May, a decline from $1.88 billion recorded in the corresponding month of the previous year.
Bankers attribute the shortage of dollars within the country’s banking system as the driving force behind many businessmen resorting to hundi to collect dollars from foreign sources. Currently, expats receive Tk108.50 plus a 2.5% incentive when sending remittances through the formal banking channel. However, the cash dollar rate in the open market ranges between Tk111-13, while it reaches Tk115-16 in foreign markets.
A senior official at the central bank acknowledges that numerous prominent businesses have opted to collect dollars from foreign sources through hundi, bypassing the official market. This practice has consequently led to a decrease in the inflow of dollars through the formal banking channel.
Overall, the drop in remittance inflows during May highlights the influence of higher dollar rates and the allure of hundi on expatriates, resulting in a diversion from the formal banking system for money transfers.
FBCCI President Urges Loan Rehabilitation over Wholesale Default Label
Mahbubul Alam, the recently appointed President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), has already communicated with the Bangladesh Bank, urging for measures to support struggling businesses that are finding it difficult to meet loan repayment obligations. He asserts that the issue of heightened inflation is not exclusive to Bangladesh but is a global concern, evidenced by surges in prices of essential goods and energy worldwide, including in the USA and Europe. While Bangladesh is striving to manage inflation, disruptions in the global supply chain are contributing to supply-side crises and subsequent price hikes in some instances.
In an interview with UNB, Mahbubul Alam shared his insights on various matters, including inflation, the dollar crisis, export diversification, and the challenges tied to achieving Sustainable Development Goals (SDGs). Elected as the FBCCI President from the Sammilito Oikko Parishad for the 2023-25 term, Alam also holds the position of President at the Chittagong Chamber of Commerce & Industry (CCCI). Beyond his business acumen, he has received accolades such as the CIP (Trade) and CIP (Industry) Awards from the Ministry of Commerce, Bangladesh. Additionally, he has been recognized internationally with a “Certificate of Merit” from the World Customs Organization.
Alam emphasizes the importance of not hastily declaring businesses as loan defaulters, particularly in scenarios where some units of a business group face issues while others are operating smoothly. He advocates for granting opportunities to rectify financial challenges rather than resorting to blanket declarations. He acknowledges the concern of loan defaults over the past two years due to non-payment by several entrepreneurs and suggests allowing struggling factories to continue operations as a solution.
Addressing the dollar crisis, Alam emphasizes augmenting remittance earnings by sending skilled workers abroad, and he calls for an improved system for channeling remittances from various parts of the world to Bangladesh. Alam, who owns M/S Alam Trading based in Chattogram, stresses enhancing the capabilities of foreign missions to organize trade fairs showcasing diverse traditions and non-traditional products, contributing to export diversification.
In the context of achieving SDGs, Alam underscores the need for local businesses to bolster their capacity to compete globally amidst the era of free trade. Despite the challenges posed by the Covid-19 pandemic, he commends Bangladeshi entrepreneurs for their resilience in maintaining business operations. Alam also highlights the significance of research and innovation, particularly involving youth, to navigate the demands of the Fourth Industrial Revolution.
Contrary to concerns about AI and machine learning displacing jobs, Alam asserts that numerous tasks still require human involvement. He advocates for increased domestic livestock rearing to meet the consumption demand for eggs, milk, and meat, emphasizing the importance of self-dependency in agricultural produce
Expert says Large defaulted loans have distressed domestic economy
Bangladesh Bank (BB) has meticulously compiled and released a comprehensive dataset of various categories of defaulted loans, aligning with the guidelines set by the International Monetary Fund (IMF). Esteemed economists have lauded this move, asserting that the report presents an authentic snapshot of the nation’s ailing domestic economy. The report not only offers transparency about the banking sector’s genuine state but also equips investors and depositors with essential insights for their future decisions.
The BB’s Financial Stability Report for the year 2022, unveiled recently, discloses that the banking sector grappled with a total of Tk 3.78 lakh crore in risky loans throughout the preceding year. This sum is calculated by combining non-performing loans (NPLs), outstanding rescheduled loans, and outstanding restructured written-off loans.
As of the close of 2022, the banking sector’s NPLs reached Tk 120,649 crore, outstanding rescheduled loans amounted to Tk 212,780 crore, and outstanding written-off loans accounted for Tk 44,493 crore. These loans, as defined by the International Monetary Fund, are categorized as non-performing loans. The publication of this report was necessitated by the IMF’s requirement, as it forms a condition for the approval of Bangladesh’s $4.7 billion loan.
To gain the IMF’s approval for the loan, Bangladesh must reduce its non-performing loans to a level of 10 percent. The IMF’s preference encompasses the rescheduling of loans and treating court-suspended loans as defaulted.
Professor Mustafizur Rahman, a Distinguished Fellow of the Centre for Policy Dialogue (CPD), emphasized the significant burden the substantial volume of non-performing loans exerts on the domestic economy. He emphasized that a substantial amount of money is immobilized in unproductive sectors, creating substantial strain. He noted that if banks received timely repayment of loan funds, they could invest more extensively in new entrepreneurs and small to medium-sized industries, which are currently grappling for funds.
Ahsan H. Mansoor, the Executive Director of the Policy Research Institute (PRI) and a former economist at the IMF, affirmed that rescheduled loans should indeed be considered defaulted loans, in accordance with the IMF’s stance. Should these rescheduled loans be treated as defaults, the default rate within the banking sector would elevate to 25 percent, a figure starkly contrasting the IMF’s recommended 10 percent threshold.
The report indicates that the rescheduled loans for 2022 amounted to Tk 63,719 crore, a sharp rise from Tk 26,810 crore in 2021 and Tk 19,810 crore in 2020. The bulk of rescheduled loans for the year 2022, around 71 percent, were attributed to private sector banks, with public sector banks contributing 24 percent.
Moreover, the BB’s report revealed that Tk 65,321 crore of debt had been written off from the financial report for 2022, surpassing the Tk 60,498 crore written off in 2021. Adding to the complexity, approximately Tk 1.0 lakh crore remains entangled in pending court cases, further exacerbating the prevailing economic challenges.
Banks on High Alert to Thwart Cyberattacks
Commercial banks are on high alert following a series of directives issued by Bangladesh Bank (BB) aimed at bolstering their defenses against cyberattacks. In response to the BB’s instructions, Mutual Trust Bank’s CEO, Syed Mahbubur Rahman, assured that the bank is working tirelessly to ensure the security of all its operations. Rahman emphasized that the bank has swiftly implemented the necessary measures to counter the potential threat, ensuring the safety of deposits and transactions. Similarly, Selim RF Hussain, CEO of BRAC Bank, echoed this sentiment, highlighting the collaborative efforts of an expert team aligned with government entities to mitigate potential cyber threats.
The alarm was raised by BB, revealing that a group of hackers had issued a warning of a cyber attack, slated for August 15. In reaction to this imminent threat, the government’s ‘Computer Incident Response Team’ (CIRT) issued a cybersecurity alert. CIRT’s statement on August 7 highlighted the potential for disruptions to State Critical Information Infrastructure (CII), as well as operations of financial institutions, healthcare providers, and both government and private sectors. Organizations concerned were urged to proactively prepare for potential cyber incidents, regardless of scale.
BB’s directives to banks and financial institutions encompassed eleven key measures aimed at preventing cyber attacks. Among these, a prominent directive was the round-the-clock monitoring of network infrastructure, especially outside regular office hours, to ensure data integrity. Additionally, stringent control over website access was emphasized as a means to curtail cyber threats. Complementary to these measures, adherence to the latest Open Web Application Security Project (OWASP) guidelines was recommended, alongside the implementation of various protocols to identify and counter insecure activities on networks.
In response, CIRT extended vital recommendations to safeguard the infrastructure of relevant organizations against cyber attacks. These included the deployment of firewalls to scrutinize incoming HTTP/HTTPS traffic, identification and filtering of malicious requests, and the safeguarding of critical services such as DNS and NTP. The significance of securing user input validation and maintaining website backups was also underscored. The incorporation of HTTPS, supported by SSL and TLS encryption, was encouraged to bolster website security. Finally, organizations were urged to promptly report any suspicious activities, employing up-to-date technological solutions.
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