Facing difficult times in the context of global economic and financial instability

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The Bangladeshi banking sector needs to focus on data collection, knowledge creation, capture, storage and application to minimize risk and create a sustainable banking sector and successfully navigate the difficult situation it finds itself in .

August 27, 2022, 11:05 a.m.

Last modification: August 27, 2022, 11:11 a.m.

Illustration: TBS

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Illustration: TBS

Strong inflationary pressure is hurting global economies and causing market instability. Developed and developing economies are facing an inflationary burden and are trying to remedy the situation by raising their policy rates. As the rate of consumer price inflation in the United States is expected to remain increasingly high, with its key rate reaching 6% in May, the United States central bank announced unusually large interest rate hikes to curb soaring prices in the world’s largest economy.

The European Central Bank also announced its intention to raise its key interest rate in July, as core inflation in the euro zone reached 3.8% in May. But it also means the risks of lower investment and less economic activity. There are already reports of declining consumer confidence, a slowing job market and shrinking business activity. Fears are growing that the trends and moves could push several global economies into recession.

Several factors have contributed to the current volatility. Multiple negative external shocks, including the ravages of Covid-19, high international commodity prices and the Russian-Ukrainian war, have plunged most developing countries into instability and vulnerability. After Sri Lanka, which defaulted on its external debt in April, several other global economies find themselves in unwarranted situations facing high commodity prices, balance of payments difficulties and market uncertainty.

Rising inflation affects the consumption patterns of low-income strata. The turmoil in the financial markets of developed countries could still negatively affect these countries and further deteriorate financial conditions and growth prospects. High inflation and strong depreciation pressures have become concerns for several global economies.

The inflationary surge in Bangladesh tends to follow trends in commodity price developments in global and domestic markets. The annual inflation rate in Bangladesh is supported by soaring food and non-food prices. The war in Ukraine and associated sanctions are also contributing to rising inflation in Bangladesh as global commodity prices rise. A high trade deficit and depreciation affect Bangladesh’s trade-centric foreign exchange market and the country’s banking sector.

Although the Covid-19 situation has improved remarkably, the economic recovery has faltered due to these pressures. Inflationary pressures could create obstacles to achieving the goals and targets of the last budget adopted by the national parliament. Current monetary policy has rightly recognized the challenge of inflation which aimed to pursue a prudent policy with a tightening bias to contain inflation and exchange rate pressures and promote the process of economic recovery, providing flow of funds to job-generating activities. And, policy efforts are underway to induce senders to improve foreign currency inflows in the Bangladesh forex market.

The global economic turmoil is having a strong impact on the global banking and financial sector. The exogenous shocks came at a time when visible transformations were occurring in terms of adopting the new normal recovery efforts, adopting newer technologies, and addressing newer compliance requirements. The need for sound corporate governance in banks is proven time and time again.

The diversity of regulatory frameworks forces banks to worry about risk appetite, customer protection and capital management, and the requirements are becoming even more stringent. This means that banks’ business strategies have undergone significant changes and talent strategies need to be changed accordingly.

And expectations of bank senior management have also changed dramatically. Banks look for leadership qualities to manage issues related to how the business interacts with customers, alongside product and process innovation. In this evolving scenario, technology-enabled financial services and sustainable banking and financial services are among the major areas that are attracting the attention of policymakers and stakeholders.

Even in this difficult situation, the forward march of the banking sector cannot be forgotten. Bangladesh’s financial sector and its institutional finance business has grown over the past fifty years. At that time, the country’s financial sector developed remarkably in terms of a greater number of formal institutions, a greater number of financing instruments, greater volumes of assets and cases of consolidations.

Banks have been the major segment of the country’s financial system, although other large crucial components of the sector covering non-banking financial institutions (NBFIs), capital market intermediaries, insurance companies and microfinance institutions (MFIs) have also strengthened their roles and activities. during the period.

Unlike developed economies and sophisticated markets, the banking sector caters to the long and short term financing needs of the country. The situation indicates considerable dependence of the Bangladeshi economy on the Bangladeshi banking sector. Thus, having a solid banking sector is a necessity for the country’s sustainable growth.

In response to changing circumstances, bank managements are constantly busy adapting to new risks and changes. They also have to deal with regulatory implications and capacity development. There is no alternative but to have the right capable people or develop an appropriate skill set to meet the challenges and developments. Regulatory expectations continue to rise and regulatory oversight is implemented with higher responsibilities to respond to potential financial difficulties.

Although the human resources management function is considered responsible for the quality and ethics of the bank’s employees, the role of the leadership network composed of the boards of directors and senior management is crucial in this regard. High-level leadership networks must create a conducive environment to develop and nurture future leaders. CEOs and boards with transformational or participatory leadership approaches can handle any challenging situation. Specifically, banks with capable leadership and a strong governance culture can continue to absorb immense market pressures and risks.

Like other countries around the world, banks in Bangladesh have no choice but to focus on improving risk culture and governance and building capacity to sustain. Banks are expected to focus on capacity development efforts to address these challenges and overcome obstacles associated with the increasing complexity of global business. It is now essential to bring all key stakeholders into the fold of capacity development, financial education and knowledge platforms.

In Bangladesh, the arrangement for data collection, knowledge creation, capture, storage and application is not widely practiced by banks. In the long term, “the development of knowledge and the storage and dissemination of information” contribute to minimizing risks and creating a sustainable banking sector.

Most importantly, banks and regulators must allocate resources to provide research-based training and organize knowledge management forums for sharing and learning. The annual Banking Conference of the Bangladesh Institute of Banking Management (BIBM) is such a forum that facilitates the sharing of research-based operational knowledge among bank executives, regulators and researchers.

BIBM is hosting the 2022 Annual Banking Conference from August 27-28 and this is the ninth conference of the annual event. It’s really inspiring for BIBM and also personally for me. In 2011, BIBM’s management and board at the time responded positively to my proposal and conceptualization of having a platform for knowledge sharing among bank practitioners, researchers and academics. .

On the way to organizing the Annual Banking Conference 2022, we launched a call for papers in April and received tremendous responses from researchers in Bangladesh and some other countries. Finally, the review team selected 30 articles for presentation. BIBM has invited selected senior industry experts and senior banking executives to add value to the business sessions as session chairs, moderators and designated speakers.

“Towards Sustainability” has been identified as the theme of the conference given the need to embrace economic, environmental and social concerns in business and financial activities in this challenging environment.

In this regard, GIZ Bangladesh’s partnership in BIBM’s efforts is highly appreciated; they actively promote sustainable and climate finance in the country. BIBM appreciates the cooperation of Business Standard and Bonik Barta in organizing the event.

We believe that key banking industry stakeholders would benefit immensely from the interactions of banking executives, academics and researchers in the ABC 2022 knowledge platform. smooth stability.

Dr Shah Md Ahsan Habib. Sketch: TBS

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Dr Shah Md Ahsan Habib.  Sketch: TBS

Dr Shah Md Ahsan Habib. Sketch: TBS

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