Banking reform for whom?

In his speech at the launching ceremony of the fifth edition of the Banking Almanac held at the National Press Club on Saturday, eminent economist Wahiduddin Mahmud made quite a few critical observations on the much hyped banking reform and the recipes the multilateral lenders such as the World Bank (WB) and the International Monetary Fund (IMF) suggest for Bangladesh. By banking reform he was referring to the roadmap of banking reform the Bangladesh Bank (BB) unveiled last week. Although the roadmap has as many as 17 key issues for the authorities to decide action plans, they can broadly be encapsulated to five. These are reduction of defaulted loans, prevention of anonymous loans and fraudulent activities, developing mechanism for appointment of competent directors, appointment of qualified independent directors and merger of weaker banks with stronger ones.

Referring to his involvement with two bank reform commissions earlier, Dr Mahmud made it amply clear that banking rules and regulations of international order were formulated and had those been included in the Banking Company (amendment) Act, there would be no need for the roadmap. The action plans are mere words instead of strong measures. As for the guidelines put forward now cannot control the damage but may stem future rot. An analysis of the fault lines responsible for rendering the tougher rules and regulations inoperative is essential. Dr Mahmud's example of removal of 70 directors from bank boards, compelling some to repay loans and others opt for voluntary resignation in 2003 due to action by the BB and judiciary serves as a pointer. The question is why such tough measures were not followed up subsequently; rather banking regulations were rendered inoperative or made further relaxed to the advantage of motivated loan defaulters. Their undue influence not only stalled the inclusion of those rules and regulations in the Banking Company Act, but also helped establish their family monopoly in banking business by just purchase of shares of several banks.

How the rules and regulations were systematically tinkered with in the interest of certain coteries is clear from former BB governor Saleh Uddin Ahmed's reference to the advantageous manoeuvring by those involved and the authorities' submission to it. During his time, there was no provision for more than two family members on the board of a bank and their tenure was for three years. The number of family members was raised to four and the tenure to six years and lately nine years. Monopoly at its outrageous! The rescheduling policy that went from 10 per cent of the outstanding loans to 20 per cent and then to 30 per cent has now been slashed to just 2.0 per cent. Similarly, the scheduled time for writing off bad loans has been brought to two years from three years. All these are done purposefully to allow defaulters a leeway and give the balance sheet a fresh and clean look. But in the process loans amounting to billions of taka is gobbled up by the loan sharks.

Clearly, the banking conundrum is there for all to see but the areas requiring urgent attention have been ignored. The roadmap has bypassed the reconstructive surgery in favour of a cosmetic one. Dr. Mahmud stressed the need for inclusion of the written off bad loans in the Banking Almanac in the interest of receiving an authentic picture of the banking sector. His doubt that the merger theory will fall flat seems to be well founded. Why should healthy private banks accept liabilities of a sick one? Incorporation may be the right word in case the sick one is taken over on its asset value. If the national interests are given preference to coterie interests, the problem, however daunting it may look, can be solved.