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BB must cut merchant banks' stock risks: IMF

News Published: Thursday, Sep 15, 2011

Thursday, September 15, 2011
Business

BB must cut merchant banks' stock risks: IMF

Star Business Report

Bangladesh Bank should exercise its authority to ensure merchant banks do not pose any operational risk to their parent companies through their involvement in the stockmarket, said a top IMF official yesterday.

“Banks have exposure to the capital market. It has to be ensured that Bangladesh Bank is doing its part to properly manage the exposure,” said David Cowen, chief of the International Monetary Fund's delegation to Bangladesh.

“We will encourage Bangladesh Bank to truly develop a supervisory framework with the Securities and Exchange Commission.”

On merchant banks' roles as subsidiaries of banks, Cowen said they are perhaps falling outside the regulatory reach of either Bangladesh Bank or SEC.

“Bangladesh Bank does have the authority and it should exercise that authority to ensure these institutions do not pose any operational risk to their parent banks.”

“We do see there is a need for considerable capacity building at SEC. We are looking more closely in this area.”

The comments came at a roundtable discussion on “Medium-Term Macroeconomic Outlook and Reform Priorities” at the Policy Research Institute of Bangladesh (PRI) in the city.

On the much-talked-about public private partnership, Cowen said: “PPP is not going to be a panacea. The experience about the issue is mixed around the world.”

“I think it does have a place in Bangladesh. But PPP is going to face a number of the same challenges like those seeking to bring foreign direct investment into the country face.”

“We are encouraged by the fact that the government has set up a PPP cell. It will however take sometime before it makes any meaningful contribution to infrastructure development in the country.”

Cowen also said the government should pay attention to the quality of the spending. “Our new managing director says IMF should not only talk about growth. When you talk about inclusive growth you cannot avoid talking about quality of spending.”

Former Finance Secretary Siddiqur Rahman Chowdhury said the government should revisit quality of spending of its annual develop programme. “It is not just about spending; it is poor implementation.”

“There is a pressure on a line ministry to have the money released and spend. It is wasteful expenditure,” he said.

PRI Executive Director Ahsan H Mansur said he is really concerned about the government finance this year. “Despite the very high level of bank borrowing last year, the domestic financing was within the planned target of the budget.”

He said in the last two months last year a lot of money was injected into the economy. “We will be seeing that down the line this time around.”

“What is going to happen this year is a matter of concern because there is very serious lack of action on the subsidy front. We will see a huge government borrowing if something is not done very quickly.”

Mansur said if fiscal policies are not corrected without further delay the country will face trouble in macroeconomic front in the coming days. “There are serious challenges ahead they need to be addressed now. Or things will really go bad.”

Former finance minister M Syeduzzaman said: “Although monetary policies seem to be loose I think they are moving in the right direction.”

He said the balance of payment is in the negative territory for the first time for a decade, which warrants sincere attention as it would put pressure on exchange rates.

Former caretaker government finance adviser AB Mirza Azizul Islam said there is a debate whether the country would allow private sector borrowing from international sources amid credit crunch. “Recently, Bangladesh Bank has moved in that direction to some extent. It is a policy issue that needs to be addressed.”

Former Bangladesh Bank governor Salehuddin Ahmed also spoke.

Speech