Factors Considered As Impediments for the Growth of Banking Sector in Bangladesh

Banking sector plays a vital role in the total economy of Bangladesh. Sometimes banking sector is treated as the lifeblood of the economy. In Bangladeshi economy capital market are mainly dependent on the financial institutions especially commercial banks. Majority of the banks in Bangladesh are privately owned and operated. You may be interested to know about the impediments for the growth of this sector in Bangladesh. I have identified the following points that seem impediments for the banking sector in Bangladesh.

Growth potential decreases for NGO activities in the rural area:

In Bangladesh, NGOs are working at the rural area and providing loans to the doorstep of the village people. Though the interest rate of NGOs is higher, but for mass communication and acquaintance borrowers take loans form them. Since banks are not still focusing on micro credit but the NGO activities is somewhat an impediment for banks performance and growth.

Robust of SME sector emergence:

As the business has changed and got a new edge, Small Medium Enterprises (SMEs) is becoming large sector of borrower. This can become an impediment as this sector expertise is less for SMEs than for MNCs. We are seeing that many commercial banks are now trying to provide loan to SMEs. As SMEs cover vast areas than MNCs, loan recovery can become a challenge sometimes. 

Spread squeezes as competition increases and govt. influence:

In our country there are large numbers of commercial banks are operating. Due to globalization and changing nature of global business, banking sector has faced huge competition. In order to cope up with this situation, bankers are striving to get the attention of the borrowers. Some times banks need to reduce the rate of interest as per the govt. and central bank’s monetary and fiscal policy. So the spread that mean the difference between deposit rate and loan rate reduced.

Loan default rate increases for meeting the target:

In banking sector it is observed that for meeting the target the banks sometimes provide more loans without proper judgment. As a result loan default occurs. So it is an impediment for banks growth. Bankers are always under pressure to fulfill the loan target. And to survive in the competitive market banks need to extend their business. If the default loan amount is increased it is bad for the banks.

 Improper management of different branches

In Bangladesh, we can see that most of the banks as for the business extension increasing their number of branches. Banks want to reach the nearest of the people locating in different places of the country. So this extension can become an impediment if the branch could not able to generate more profit. If the cost of the branch is more than the revenue then it will become bad for the banks. Sometimes management inefficiency can lead to a branch unprofitable.

Impact of politician over bankers

As a third world country like Bangladesh, we can see the influence of politicians over the banking system. Sometimes politicians demand loans from banks using the political power. We have seen in the past that many bank’s loan defaulters are the politically disguised businessman.

Lack of aggressive marketing:

In banking sector with the increased competition, banks need to promote their offering to the borrowers. But as banking offers are different from the products offered by the MNCs, in order to meet up the loan target banks should initiate marketing campaign. Some of the banks are focusing on this issue and have opened some sales wing for banks. But the industry should go a long way.

Despite the above mentioned impediments still banking sector is expanding in Bangladesh. The government of Bangladesh can take proper actions to make the way smooth for banking sector.