Findings on the country's financial sector, in particular banking sector, by the Centre for Policy Dialogue (CPD) are believed to significantly help the interim government resuscitate the country's ailing banking sector. During a press conference last week titled "Bringing Discipline in the Banking Sector: What Should be Done Immediately," the think tank while highlighting shocking irregularities by some bank owners right under the nose of the former government, offered suggestions on some critical areas for the government to consider.
A key aspect of CPD's analysis is its challenge to long-held perceptions that were seen as vital to maintaining the banking sector. One such is allowing moribund banks to continue and not die, by injecting taxpayers' money. The CPD dismissed the notion saying banks that are "clinically dead" and surviving only through bail-outs, should be closed down. The interim government, it said, should formulate an exit policy focusing on protecting depositors' money. One may recall that years ago, then finance minister late M. A. Muhit was seen not only justifying but visibly flaunting the 'glory' of keeping dying banks afloat as a state responsibility. It's time the government took a decisive move in this direction.
That the banking industry is plagued with non-performing loans (NPLs) for decades is pretty well known. All that the former regime did was reschedule loans in a manner to suit the big loan defaulters. However, the actual figure relating to NPL varied. CPD's calculation says that during 2008-2023, Tk 92.26 billion, equivalent to 12 per cent of the national budget of FY24 or 2.0 per cent of the GDP of FY23, was embezzled in 24 major banking scams. Citing an example of misdirection in banking and finance, the CPD pointed out that a single corporation gained control over seven private commercial banks in 2017. It said, quoting news reports, that S Alam Group took out about Tk 30 billion in loan from Islami Bank Bangladesh Ltd in 2022. According to the Bangladesh Bank roadmap for reducing NPLs, released to the media in February 2024, 72,543 cases were pending with the Money Loan Court, with an outstanding amount of BDT 178.27 billion.
There are innumerable instances, though not of such gigantic scale. Citing them will only make the list longer, and present a chilling picture of how outrageously errant could the banking sector be in the grip of the embezzlers. Clearly, it is the Banking Company Act that lent support to keep them going. In this connection the CPD said the Act should be amended so that there is only one member from one family on the board of directors, and the tenure of each director should be limited to 3 years, with each director allowed to serve a maximum of two terms in their entire lifetime. A single individual or group of individuals should not be allowed to obtain majority ownership of more than one commercial bank. Also, if one company in a group of industries defaults on loan repayment, companies in the same group of industries should not be allowed to take new loans.
Some corrective measures were also suggested that the think tank considered should be in place in respect of governance. One such is the shutting down of the Financial Institutions Division (FID) of the Ministry of Finance (MoF). "The mandate of the Financial Institutions Division (FID) is directly contradictory to the Bangladesh Bank Order 1972 (P.O. No. 127 1972) since it allows FID to exercise its authority to oversee Bangladesh Bank's governance" said CPD Executive Director Fahmida Khatun.
The think-tank while criticising the approval of licences for nine new private banks granted to politically influential owners by the previous regime, urged that no further bank licences be issued on political grounds without a thorough assessment of the economy's needs. On the issue of illicit financial flows, the CPD called for strengthening the Bangladesh Financial Intelligence Unit (BFIU) to prevent illegal outflows and reentry of laundered money, which would destabilise the interim government or cause unrest. Another issue that the think tank stressed upon was timely data availability, urging that reports and data on individual banks and financial institutions be published regularly and made publicly accessible. It also recommended that all commercial banks comply with mandatory BASEL III disclosures in a timely manner. The Bankruptcy Act should be amended to include corporate bankruptcy and cross-border bankruptcy following the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.
At this critical juncture, one crucial step that cannot be overstated, as highlighted by the CPD, is the urgent need for publication of a comprehensive white paper. This document should meticulously detail all instances of scams and corruption, clearly identifying both the underlying causes and the individuals responsible. Such transparency would not only pinpoint past misconduct but also pave the way for greater accountability in the future, including the establishment of an independent Banking Commission to oversee the sector. In this context, it is particularly pertinent to revisit the infamous Bangladesh Bank heist of February 2016, where hackers made off with a staggering sum of money. Many believe that this incident was never thoroughly investigated, possibly due to efforts to shield those who were negligent in their duties. The failure to properly address this scandal has left lingering doubts about the commitment to transparency and accountability within the financial system. By addressing these issues head-on in the white paper, the authorities could finally confront the systemic flaws that have allowed such incidents to occur, thus restoring public trust and ensuring that similar breaches of security and ethics do not happen in the future.
© 2024 - All Rights with The Financial Express
