How will banks do business if customers do not pay and banks do not lend? So, uncertainty is looming around
The year 2021 will be very unpredictable for bank business. The United Kingdom already went into the second lockdown because of the new virus variant hit, and vaccination is still uncertain.
Borrowers were given payment pause for a year, which may be extended. Strong lobbying is going on to extend the facility. Banks are already in trouble with higher provisioning requirements.
If the payment pause is extended, it will create additional problems for banks. How will banks do business if customers do not pay and banks do not lend? So, uncertainty is looming around.
We have some good fundamentals like strong remittance, surplus current account balance and good improvement in the balance of payment, but all those good indicators result from a decline in imports. These indicators will not always be the same because if we want economic development, imports will jump to $4-$5 billion a month.
When imports rise, remittances will fall. Because remitters are sending money via the formal channel due to no demand for foreign currency at this moment. Many workers lost their jobs, and when the 2% incentive is lifted, remittance inflow will decline.
The current account balance may become negative as a consequence of the fall in remittance inflow.
Moreover, private sector investment is now completely stagnant. Still, economic activities are led by government investments. So, there are many uncertainties that should be addressed. Otherwise, positive indicators will turn into negative.
The next year will be more challenging. Because how long can banks go without lending, returns and payments from clients?
Syed Mahbubur Rahman, managing director of Mutual Trust Bank