They also called for proper diagnosis of troubled banks, adequate provisioning and stronger risk management, and cautioned against repeatedly extending fresh loans to heavily indebted companies to repay old debts.
They stressed the need for independent bank boards, professional credit decisions and equity-based restructuring of businesses facing unsustainable debt burdens.
The observations came at a discussion titled ‘In-depth Financial Analysis of Banking Sector’, organised jointly by the Capital Market Journalists’ Forum (CMJF) and CFA Society Bangladesh at the CMJF auditorium in the city.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank PLC, spoke as the chief guest, while Md Minhaz Zia, chairman of North Star Investments (BD) Ltd, was present as the special guest. Mahtab Osmani, CFA and president of CFA Society Bangladesh, delivered the introductory remarks.
CMJF president Md Munir Hossain chaired the event, where a keynote paper on ‘In-depth Financial Analysis of Banking Sector’ was also presented.
Speaking at the event, Syed Mahbubur Rahman said liquidity remained concentrated in a limited number of banks instead of being distributed evenly across the sector.
“The recent growth in liquidity has not benefited all banks equally. Many banks are still struggling to provide financing,” he said, adding that even large companies were facing difficulties in obtaining the liquidity they needed.
Simply injecting capital into troubled banks would not be enough to restore their financial health, he said, adding that the effectiveness of capital support should be assessed based on the actual condition of each bank.
He said a bank facing long-term lending commitments while relying heavily on short-term funding cannot realistically generate sufficient profits by recycling its existing funds to rebuild capital. Such a situation also exposes banks to interest-rate and market risks.
Mr Rahman argued that losses on severely impaired assets should be recognised rather than concealed through repeated capital support. If such losses effectively wipe out a bank’s capital, they should be properly reflected on its balance sheet, he added.
He said the problems facing the banking sector had already been identified and that the priority now should be implementing the necessary reforms alongside strengthening corporate governance.
“If the identified reforms are implemented properly, the banking sector can recover from the current difficulties,” he said.
The banking sector may also move towards greater consolidation through mergers, he said, adding that Bangladesh could eventually have a much smaller number of banks.
However, he said, he could not predict how many institutions would ultimately remain.
Rather than relying heavily on layoffs or cost-cutting, banks should focus on improving efficiency and productivity, he suggested.
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