All attention, undeniably, is now focused on the country's banking sector. A large space of newspapers and most part of deliberations made at seminars and symposiums are now spent on highlighting the unpalatable developments in the banking industry.
The banking industry, quite deservedly, has always got prominence in the media and other public deliberations. But the attention it has got is mainly for some negative developments despite the fact that it has large contributions to the economic growth of the country.
Lately, the frequency of bad news concerning this vital segment of the economy is now greater than any time in the recent past. Naturally, media and experts in the relevant fields have also found it proper to display and discuss the banking issues more intensely.
The issues under discussion have been many, at least, during the past one decade. The state of the public sector banks and the non-performing loans are the issues that have been under constant discussion. And most people started considering those as unavoidable evils in the banking system.
But the sector got its first severe jolt when the Hall-Mark scam involving a sum of Tk 40 billion was unearthed in the state-owned Sonali Bank. It was followed by another loan scam of even bigger size in the BASIC Bank, a public sector bank. Experts at this stage started talking loudly about the ills of political interference in both management and loan decisions of the public sector banks and they recommended divestment of these banks along with greater regulatory control of the central bank. But, unfortunately, the government until now is sticking to the old ways -- it is exercising full control over the public sector banks.
Some people involved in the loan scams got away unscathed. However, following intense pressure from the public and the media, a former chairman of BASIC Bank, seen as the key player in the loan scam, has been recently grilled by the Anti-corruption Commission (ACC). However, one can hardly be certain about his fate right at this moment.
The performance of the private sector banks, the dominant players in the market, though was better than their public sector counterparts has not been anyway perfect. The central bank does on occasions detect small irregularities. But the size of the classified loans with the private-sector banks is, however, quite large. It is alleged that some banks have learnt the art of duping the regulator in many ways and their financials do not always contain the actual situation on the ground.
They are able to hoodwink the regulator since there are a few audit firms that are ready to play with numbers for the benefit of their clients.
The worries that have intensified lately do not concern only the public-sector banks but also private-sector banks. There could be some variation in the state of the rot. But the problems albeit in low intensity, allegedly, do exist also in some private banks.
The use of political favouritism in granting licence remains one of the major downsides when it comes to floating of a private financial institution or selecting directors for public sector banks. This particular issue came to the fore when two major successive loan scams severely jolted the financial sector.
Yet amid all hot discussions and widespread criticism, the central bank under intense pressure had reluctantly granted permission to open nine new banks, known as the third generation banks. Most sponsors of these banks were one way or other politically linked to the ruling party. Such connection would not have been a problem had there been proper regulatory surveillance in place.
It did not take too long a time to see the unpleasant results of rash decision to allow nine more banks. At least a couple of them are now on the verge of collapse. The board of one bank has been restructured along with removal of its managing director. Clients with deposits with this bank are reportedly now going through a difficult time.
What is surprising is that some people who are, directly or indirectly, responsible for allowing these banks are pointing accusing fingers at the management of these so-called third generation banks.
The changes in the boards of a number of private banks in recent months were of no less significance. Many tend to liken the changes to coups, allegedly, staged by certain influential quarters, to gain control of the banks in question. For banking industry people, this is quite a new experience. But they are, apparently, not certain about the ultimate outcome of the development.
The proposed amendment to that Bank Companies Act that would allow increase the tenure of directors of private banks from six years to nine years and representation of four members from a single family in the board of directors has also drawn widespread criticism. Yet the government seems to be bent on approving the amendment though it has all the potential of weakening governance in the banking industry further.
The situation now prevailing in the banking industry is not at all healthy and it highlights a certain degree of regulatory weaknesses. The volume of non-performing loans has doubled in just eight years time. Had proper regulatory control been in place, the NPL would not have grown to this size.
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