The way Bangladesh Bank is providing support to weak banks, the people and the country will have to bear the brunt finally, eminent economist Dr Wahiduddin Mahmud said on Saturday.
He said despite huge loan scandal in some large banks the government did not let any bank to sink due to its humane side and domino effect on entire banking industry. This has also led people to make deposits in these banks, he added.
Dr, Mahmud noted that influential people and vested interest groups have wiped off institutional memories of the country's financial sector.
The economist said he had been a part of two bank reform commissions that had formulated so many rules and regulations, including limiting the number of sponsor directors from a family and their tenure on board.
Other rules included setting international standards for declaring someone as defaulter, introducing globally recognised definition of classified loans.
"All the rules and regulations were made effective once, but not included in the Bank Company (Amendment) Act later," the economist told the launch of the fifth edition of Bank Almanac at the National Press Club in the city.
"These rules and regulations have not just gone, influential people and vested quarters played their role in removing those."
"Now, why do we have to talk about tougher definition of defaulter or classified loans or number of tenure of directors on the board?" he questioned. "We should review and make analysis on previous rules and regulations before setting a fresh roadmap which were being talked to get rid of defaulted loans."
The new roadmap will not work if not evaluated previous ones, according to Dr Mahmud.
Sixty to 70 directors were removed from bank boards, some had to repay loans and some resigned voluntarily in 2003 due to action taken by the central bank and judiciary against defaulted loans by sponsor directors.
He said there were all rules and regulations in place from how much loans a sponsor director could take from own bank to how many members of a family be on board and their tenure.
Bank Almanac can work in preserving institutional memories as central bank itself is reluctant to preserve the same, according to him.
Dr Mahmud said the amount of loans written off was more important to mention than the amount of classified loans to understand the health of banking sector.
He said Bank Almanac should mention loan written-off information, especially individual and cumulative amount of written-off loans be stated.
Banks should have more detailed and audited disclosures stating particulars of sponsor directors, their total amount of loans against share and publish them in newspapers.
Dr Mahmud said interest rate should have an upper limit to protect smaller banks, not entirely be left for market.
"The IMF and the World Bank don't understand local reality of Bangladesh."
Dr Mahmud said new banks permitted under political consideration could not collect enough deposit to survive.
"Now, the government wants to merge them with large banks. If it listened to what we had said there was no room for new banks and present situation would not have arisen."
Referring to recent talks on merging weaker banks with stronger banks, the economist said good private banks would not take burden of weak banks.
"If the government want do it forcibly, they can merge with state-owned banks."
Dr Mahmud said the country did not make anti-monopoly policy in the law during the early time of formulating rules and regulations, which was a grave mistake.
"A particular family couldn't have taken the control of so many banks by just purchasing of shares of banks if such anti-monopoly were in place."
"The same mistake was repeated and we don't know when we would learn and from how many mistakes," he said.
Former Bangladesh Bank governor Saleh Uddin Ahmed said the banking sector was moving in an opposite direction.
"The rule for the number of family members and their terms on the board of a bank was two and tenure three years during my time."
"Later, the number changed to four and tenure six years, then to three and nine years. Now, it may be going … for a lifetime," he said, dubbing these are 'absurd reforms'.
Citing another example of 'absurd reform', Mr Ahmed said, "Rescheduling policy at first was 10 per cent of total outstanding loans. Then it was made 20 per cent to make it tougher. To make it further tougher, it made to 30 per cent. Now, it's 2.0 per cent only."
He said now central bank introduced a new policy to write off bad loans within two years from earlier three years which may go to six months in future.
"Following this, around Tk430 billion will be wiped off the balance sheet, so it would look fresh and clean with much of classified loans gone."
Corruption is prevalent in every country but it is rewarded in Bangladesh, according to him.
"Loan defaulters face harsh punishment in the countries that have good governance in the banks, in our country they are rewarded."
If new banks do not come with innovative and creative approach and products, according to the former governor, there is no need for new banks.
Exim Bank additional managing director Shah Md Abdul Bari said Banking Almanac 5th Edition is a more informative publication, which would serve as a reference book for investors, researchers, bankers, journalists and those working with banks.
Association of Bankers Bangladesh former chairman Mohammad Nurul Amin, also chairman of FAS Finance and Investment, delivered a welcome speech while Banking Almanac project director Abder Rahman, among other, spoke.
bdsmile@gmail.com