Depositors are now being affected as ailing banks are unable to return their money, experts said during a discussion, adding that the central bank should keep crisis-hit banks alive by providing liquidity support, opting to liquidate weak lenders or merging them with sound ones.

They made the suggestion during a discussion on the performance of the economy in the first 100 days under the interim government at The Daily Star Centre yesterday.

The participants in the discussion, organised by The Daily Star, included researchers and businesspeople.

Monzur Hossain, research director of the Bangladesh Institute of Development Studies (BIDS), said the central bank previously supported ailing banks by printing money to provide liquidity support.

He added that the problems arose after that support ceased suddenly.

General people are being affected by this, he said, adding that the central bank's decision to stop printing money was not helping to manage demand.

Hossain also criticised the central bank's decision to speak about the state of ailing lenders publicly. When a regulator says that some banks are on the verge of bankruptcy, the condition of those banks deteriorates further, he said.

"Now, depositors are panicking and withdrawing money from some banks."

He added that curbing inflationary pressure and bringing discipline to the financial sector are the major challenges at present.

The dull state of the economy is a legacy of the previous government and its mismanagement, faulty policy measures and "9-6 interest rate policy", the economist said.

The 9-6 interest rate policy refers to a government directive in 2020, when it asked the central bank to instruct all banks to implement a 9 percent interest rate on lending and 6 percent rate on deposits.

This decision was only withdrawn last year.

"Investment has not increased due to the 9-6 interest rate policy, but default loans have increased," he pointed out.

The current governor of the central bank is tightening the monetary policy further to rein in skyrocketing inflation. But how this will work in a developing country like Bangladesh remains a question.

"Controlling the money supply may not work to rein in inflation as it does in the US. We are not the same economy," Hossain said.

"Around 70 percent to 80 percent of loans are consumer loans in the USA. That is why tightening the money supply works in controlling inflation there. But in our country, consumer loans are only around 12-13 percent.

"So, we need an accommodative monetary policy."

He added that inflationary pressure is not a consequence of monetary management and demand management alone, but that there are also supply-side issues.

"It would be unwise to damage the economy by controlling inflation in this way," he said.

The economist also emphasised the need for economic diversification and suggested reducing the dependency on the ready-made garments sector.

Kamran T Rahman, president of the Metropolitan Chamber of Commerce and Industry (MCCI), said: "The banking sector is in a very bad situation. I don't know how we will escape it.

"There was an attempt to merge the ailing banks before the interim government came to power, but that didn't happen. Maybe that decision wasn't correct, but the interim government needs to do something to this end."

Rahman added that non-performing loans had gone through the roof. "Will we be able to repair these non-performing loans? I don't think we will be able to do it quickly."

He also pointed to some areas that could be overhauled quickly.

"I think the interim government is too busy with deep, long-term thinking. I think it is fine. But along with this, there are low-hanging fruits that the government can take up -- such as strengthening the money loan courts by increasing the number of judges."

Mir Nasir Hossain, managing director of Mir Akhter Hossain Ltd, said the interest rate has increased due to the monetary tightening of the central bank.

He said that loan classification rules may be tightened from March, which will raise bad loans in the banking sector.

Mostafa Kamal, managing director of Meghna Group of Industries, said businesspeople are always blamed for high inflation.

He said that the 9-6 interest rate policy and the appreciation of the US dollar against the local currency had mainly impacted the country's economy.