Looking forward to a banking commission

FE Team | Published: August 20, 2024 20:24:37

It won't be an exaggeration to say that the country's financial sector, the banking industry to be precise, is in a shambles. Unsustainable amount of default loans, maladministration, outright looting by some bank directors, poor governance have together left the banking industry comatose. So, the need of the hour is to resuscitate the banking sector and the only way to achieve it is drastic reform of the sector. But the demand for such reform is not new and to this end at least two high-profile committees were formed between 1996 and 2002 to suggest measures for streamlining the banking institutions. But despite these efforts, the sector did not see much improvement in the following years. Things came to a head during the just-ended 15 plus years' rule of the immediate past government.
Against this backdrop, Dr Muhammad Yunus-led interim government has decided to form a banking commission of which a roadmap would be published within its 100 working days. This is an eminently welcome move. Given the mess the banking sector is in at the moment, it is believed the government is also aware of the herculean task lying ahead. For the task before the banking commission to be formed is not simply a technical one as it will have to face challenges from entrenched quarters who are loathe to any change. The private banks, for instance, were being looted by their own directors, a culture that has vitiated the banking sector environment in recent years. Virtual collapse of the corruption-ridden private banks such as the Farmers Bank and the National Bank is a testament to this. LC fraud worth Tk 160 billion in the Social Islami Bank and loan amounting to Tk 300 billion taken from the Islami Bank by its owner through illegal means are among many irregularities that took place during the past 15 years.
Though the policy of the Bangladesh Bank (BB), does not allow bank directors to borrow money more than 50 per cent of their total shares from their own banks, they resort to tactics including taking loans anonymously against the names of their relatives or companies just on paper created for the purpose to get around the BB rule. Also, they looted other banks in connivance with each other ---a vicious collaboration infamously known as 'loan swaps'. This happened due to the absence of good governance, a lack of transparency. There was policy support from the BB itself so that the bank directors could continue with their evil practice. To illustrate the point, the then-finance ministry's decision (in April 2018) to reduce the banks' Cash Reserve Ratio (CRR) by 1.0 per cent and make allowance for the private banks and non-bank financial institutions (NBFIs) to obtain up to 50 per cent of the funds owned by government, non-government and autonomous bodies can be cited.
Notably, earlier the limit was 25 per cent at the most. Then comes the issue of extending the bank directors' tenure, which, before the 2018's highly flawed national election, was increased from six to nine years. Later, it got further extended to 12 years through an amendment to the Bank Company Act passed in parliament under pressure from the private bank owners. That's how the predatory banking oligarchs took control of the banking sector. Now it is time the banking sector were freed from the clutches of the predatory oligarchs who have literally bled the financial sector dry. Understandably, the banking commission as envisaged will have an uphill task. But the unprecedented talented team of financial advisers of the interim government will hopefully be equal to the challenge.