Rising investment may lead to liquidity crisis: adviser
Thursday, 26 June 2008

Finance adviser AB Mirza Azizul Islam said Wednesday that banks might face a limited liquidity crisis as investment was on the rise for what he called a business-friendly environment, reports bdnews24.com

"Investment has been boosted due to various government steps and announcement of an investment-friendly budget," the adviser told reporters at the planning ministry after a meeting with a delegation from the Bangladesh Association of Banks.

"Lack of confidence that businessmen and industrialists suffered is now over. They are all coming in for investment. Setting up new industries may drive up demand for loans and make banks suffer from a slight liquidity crisis," the adviser said.

The statement comes less than one week after the adviser opposed FBCCI president Annisul Huq's statement that the "liquidity crisis" was preventing businessmen from investing in new projects.

"Banks are not disbursing loans. Even a syndicate of banks could not pay a loan of Tk 50 crore," Huq said at a discussion meeting on June 21.

The adviser had countered the allegation saying: "Banks have more than Tk 12,000 crore lying idle."

The banks might have refrained from paying loans to particular entrepreneurs for faults with the projects, he had said.

The adviser Wednesday emphasised that at present there was no liquidity crisis in the banking system.

Bank owners at the meeting demanded that corporate tax on banks be reduced to 40 percent from the proposed 45 percent.

The adviser told reporters that the BAB members had made similar demand before the budget was announced. "There has to be a review to decide on whether tax-cut is possible or not," the adviser said.

In the budget for fiscal 2008-09, the finance and planning adviser proposed a 45 percent corporate tax on banks.

On the alleged liquidity crisis, the adviser said: "Bank directors have said they are short of liquid assets. But I have statistics that up to Tk 12,000 crore is lying idle in banks."

The adviser said the call-money rate was also low.

"So there should not be such a crisis," he had said

The adviser said that bank owners had told him interest rates were hiked in order to enhance deposits of the private banks caused by increasing investment.

The government asked banks to narrow the spread of interest rates on deposits and bank loan down to 5 percent.

On extension of tenure of the bank directors, the adviser said: "I have nothing to do with it. Bangladesh Bank will take a final decision on the matter."

BAB chairman Nazrul Islam Majumder, also chairman of EXIM Bank, differed with the adviser on the amount of money lying idle in banks, saying that it would be less than Tk 12,000 crore.

Nazrul Wednesday admitted that investment had marked a rise in recent days.

"Many people had refrained from investment due to a changed political situation. But they all came to invest as a stable political situation returned to the country," Nazrul said.

In addition to this, a big chunk of investment has been made in the share market that may cause liquidity crisis, he said.

The BAB chairman said that the adviser showed a positive attitude towards corporate tax cut.

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