Flash Report /
Bangladesh

Bangladesh to form a banking commission to improve asset quality

    IDLC Securities
    23 February 2020
    Published byIDLC Securities

    Last week Bangladesh's Finance Minister (FM) said that the government is going to form a bank commission to evaluate the overall banking sector and suggest measures to improve asset quality. The government is considering Mr Wahiduddin Mahmud (a renowned economist) to be the head of the commission. The backdrop of deteriorating asset quality was a key factor in the government's plans to form this banking commission. In the past few years, the health of the banking sector has deteriorated significantly as NPLs increased to 12% at the end of September 2019 from 9% in December 2015. Accordingly, the profitability of the banks has reduced significantly in the past five years. Return on Equity (ROE) dropped below 5% at the end of September 2019 (annualized) from an earlier 10% level. 

    Our view

    We think this is a brilliant move by the government to improve the overall health of the banking sector and it may be the first step towards banking sector reform.

     

    Classified Loan 
    Return on Equity

    Source: Bangladesh Bank

     

    Short bio of Mr Wahiduddin Mahmud

    • Wahiduddin Mahmud is a professor of economics at the University of Dhaka. He has obtained his Ph.D. in economics from Cambridge University. He has consultancy and teaching experience at Cambridge, IDS at Sussex, IFPRI and the World Bank, etc. 
    • He is currently a member of the UN Committee for Development Policy (UN-CDP) and chairman of the South Asian Network of Economic Research Institutes (SANEI). 
    • He and Nobel peace prize winner Muhammad Yunus co-founded the Palli Karma Sahayak Foundation (PKSF). It is an apex institution to fund the microfinance programs of NGOs in Bangladesh. He is also the Chairperson of the Institute of Microfinance, a sister organization of PKSF.
    • Mr. Wahiduddin was the Chairperson of Bangladesh's first banking commission which was formed in 1996. That banking commission played a good role and Mr. Wahiduddin's role was highly acclaimed by everyone.