Banking reform must be carried through

There is no gainsaying the necessity of recovering the banking sector that has been left in ruins through mismanagement and outright looting by the henchmen of the previous dictatorial regime. Against this backdrop, the Bangladesh Bank (BB) governor was spot on when he could not rule out the possibility that some ailing banks now on life-support might face closure. His assertion is incontestable since those sick banks are purely a drain on the public exchequer.

The sooner those banks are given a decent burial the better for the economy even though the idea might be unpalatable to the owners of such sick banks. Notably, the BB governor reportedly expressed his view at a conference titled 'Recommendations by the Task force on Re-strategizing the Economy'. The task forces and the reform measures they have initiated to revive the banking and other sectors of the economy are the undertakings made incumbent on the interim government by the student-led mass uprising. So, there is no question of going back on the reform initiatives such as restructuring of the weak banks in consultations with the government and other stakeholders as told by the governor of the central bank at the conference in question.

When it comes to the issue of reforming banks, it is common sense that the task falls in the domain of experts in the field who are to fulfil the mission of the task force. In that case, it is only expected of the entire banking sector and politicians that they would be supportive of the ongoing reform work now in progress in the sector under consideration. It is reassuring to know that some of the malfunctioning banks undergoing restructuring under the present administration of the central bank including, for instance, the Islami Bank Bangladesh and United Commercial Bank, could finally be recovered and are now reportedly performing well. So, it is encouraging for the owners of other troubled banks.

On this score, a 'draft of bank-resolution ordinance' aiming at resolving the issue of sick banks has already been prepared which would take necessary measures including liquidation, merger and recapitalisation of the ailing banks. While welcoming the move to formulate a legal approach to decide the fate of the banks in serious liquidity crisis or overburdened with non-performing loans, it is also important to develop a system by which depositors could be protected in case any bank goes bankrupt. At this point, a disclosure by the central bank governor that work on framing of a deposit insurance act is ongoing is unquestionably a move in the right direction. It is a move long time coming in the interest of the bank depositors who happened to be the actual victims of the failing banks. While protecting the depositors with insurance coverage, the authorities concerned should also think of taking penal measures against such bank directors or owners who wilfully allowed their banks to go bankrupt. To avoid such undesirable outcome, experts concerned may also think of incorporating the idea of increasing the number of independent directors at the banks as well as prohibiting bank owners becoming chairperson of the banks concerned.

As banks play a key role in the economy by providing financial services and creating credit, its proper functioning should be assured through the ongoing reforms. Let this vital task now in progress continue unhindered.