Banking experts have underscored the need for better credit risk management and good corporate governance to reduce the volume of non-performing loans (NPLs) in banks and other financial institutions.
They also suggested that the financial institutions should disburse loans to new sectors and businesses to promote product diversification in order to boost the export growth.
They made the call at the inaugural session of the two-day Annual Banking Conference (ABC)-2019 on Wednesday.
The Bangladesh Institute of Bank Management (BIBM) organised the event at its auditorium in the city, with Bangladesh Bank (BB) Governor Fazle Kabir as the chief guest.
BIBM director general (DG) Dr Md Akhtaruzzaman presented the keynote paper and conference organising committee chairman Prof Dr Shah Md Ahsan Habib delivered the welcome speech.
Referring to a statement of the keynote paper that most of the banks show negative attitude in disbursing loans to new sectors, BB Governor Fazle Kabir said only 20 per cent of banks give loans to new sectors while 80 per cent are confined to financing old businesses.
"This kind of polarisation of credit policies either by sectors or by businesses are not at all good practices for the banks," he said.
Bangladesh is heading towards becoming a middle-income country in the future, but before that it needs to boost exports first to attain the status of a developing country by 2024, he noted.
Terming Bangladesh an import-dominated country, the central bank governor said the country needs transformation from it by enhancing exports, which is unfortunately maintaining a declining trend this fiscal.
Besides, the private sector credit growth is also on decline that mismatches the sector's target, he added.
"In terms of increasing export, we need export diversification and that will come along when the banks will provide loans and advances to sub-sectors," Mr Kabir said.
He also called upon the banks not to play safe when it comes to financing new sectors as flourishing of new businesses may ensure long-term sustainable profit of the financial institutions.
Presenting the keynote paper titled 'A Review of the Banking Activities', BIBM DG Dr Akhtaruzzaman said that in 2018, 20 per cent of the country's banks disbursed loans to new sectors or industries whereas 80 per cent banks were confined to old business.
The banks need to come out from this extra-cautious business model, he commented.
Besides, he informed that the amount of loans to the agriculture sector fell by 9.0 per cent year-on-year basis.
The ongoing liquidity crunch in the banking sector has left an adverse impact on the disbursement of farm loans, he noted.
The ratio of NPLs stood at 10.31 per cent of the total outstanding loans in 2018, Dr Akhtaruzzaman said, adding: "Cases involving almost Tk 750 billion of default loans were pending with the money loan courts because of the drawn-out process to settle the cases."
He also pointed out that unhealthy competitions among banks regarding loan takeover have resulted in vulnerability in the banking industry, as most of the taken-over loans became defaulted.
Six papers were presented at the plenary session-1 titled 'Key Operational and Management Areas of Banks', with former BB deputy governor Dr Mohammad Sohrab Uddin in the chair.
Bangladesh Krishi Bank Managing Director Ali Hossain Prodhania, HSBC Bangladesh CEO Francois de Maricourt, and Managing Director and Citi Country Officer of Citibank Bangladesh Narasimhan Rajasekharan spoke as discussants.
Delivering his views on the papers, Mr Maricourt said out of 75 economies the HSBC reviewed, Bangladesh was identified as the fastest growing economy in the world.
To become a middle-income country, ensuring good governance in financial sector is important for Bangladesh, he said.
Terming credit risk 'the biggest threat' for the banks, the HSBC official said improving management of credit risk and ensuring good corporate governance can be the key to reducing NPLs.
Another plenary session titled 'Key Operational and Management Areas of Banks' was also held on the first day of the conference.