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Rising sales of savings tools add to liquidity woes

Analysts say

Star Business Report
The spiralling sales of savings instruments have caused the liquidity crisis in the banking sector, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh.
The banking system is experiencing a declining growth in deposits for several years due to low deposit rates, he said.
The savings instruments of the Department of National Savings offer interest rates, which are much higher than any bank in the market, he said.
For this reason, small depositors prefer to invest in the savings instruments, he said during the launch of PRI's quarterly publication—Policy Insights—at its Banani office in the capital.
A wide gap emerged in credit and the deposit growth rates in the banking system, contributing to the acute liquidity crisis in the banking system, he said.
The growth in bank deposits continued to plunge and eventually declined to only 10.6 percent in December 2017, down from the average growth of 16-18 percent, he said.
Certainly, banks cannot meet the demand for credit—which is growing at 19 percent—with its deposits, which is growing at only 10.6 percent, he said.
Mansur thinks the liquidity problem led to the increase of non-performing loans, which limited banks' role as the source of revolving creditable fund and significantly reduced banks' capacity to expand new credit.
Huge investment will be required in the next five to six years to automate factories for higher production and compete with the global competitors, said Syed Manzur Elahi, former chairman of the Bangladesh Association of Banks.
"If you have no fund then you cannot automate your factory and production will not grow. As a result export will reduce enormously," said Elahi, who is also the chairman of Apex Footwear.
"At this moment, we need technical person and more skilled manpower for higher production. There is no scope to absorb hundreds of thousands of business graduates. So we should give emphasis on vocational and quality education."
MA Mannan, state minister for finance and planning, emphasised adoption of modern technologies as it is the driver of economy.
“Although we have limitations, we should adopt new technologies to increase production."
The declining trend of employment in the industrial sector is the impact of factory automations, which has cut the dependence on the physical presence of workers, said Shamsul Alam, a member of the General Economic Division.
There is a huge gap in GDP growth figures forecasted by international agencies and the Bangladesh Bureau of Statistics, said Zaidi Sattar, chairman of PRI.
Sattar said he disagreed with the GDP growth forecast of agencies like International Monetary Fund, World Bank and Asian Development Bank, as they lack adequate manpower to estimate the growth accurately.
The international agencies' forecast depends on assessment, from which it is not possible to estimate economic development correctly, he said.
M Syeduzzaman, former finance minister; Moazzem Hossain, editor of the Financial Express; MA Razzaque, editor-in-chief of Policy Insights, and Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, also spoke.