Crisis of leadership in the recovery of default loans, political influence and highhandedness of a section errant borrowers have brought the country's banking sector on the edge, according to a research report prepared by the Transparency International, Bangladesh (TIB).
The report, titled, "Banking Sector Supervision and Regulating Default loans: Governance Challenge of Bangladesh Bank and Way of Forward" was published at a virtual press conference, organised by the TIB on Tuesday.
Irregularities of various sorts, political interference and inadequate resources have made the Bangladesh Bank (BB) 'almost non-functional' in the matters of managing the default loans, executive director of Transparency International Bangladesh (TIB) Dr Iftekharuzzaman said at the press conference.
"Regulations and supervision of the BB to control default loans are now only on papers; in reality, almost, there is no regulation," Dr Zaman said.
He alleged that the banking sector had reached on the "brink of collapse" due to massive irregularities and deterioration of the BB's control over the banking system."If the situation is not checked with utmost urgency, the collapse is inevitable", he said.
Dr Zaman said the government is supposed to protect public money in the banks. But the government, he alleged, is hardly doing that.
"It is the government's duty to protect public money in the banks, but what is happening is quite opposite. The government has become a hostage in the hands of the loan defaulters," he added.
The TIB executive director said that the so-called bank owners, regulators and the government, these three parties jointly make the scope for looting depositors' money.
TIB research director Mohammad Rafiqul Hassan presented a paper on the issue and identified reasons behind the rising volume of default loans. The reasons included the central bank's weak regulatory framework caused by limitations of the banking sector law, lack of political will and pressure from the influential quarters.
It said the volume of classified loans have increased by 417 per cent in the banking sector since 2009 while that of outstanding loans by 312 per cent.
The research covering a period between 2010 and 2020 was conducted between January 2019 to June 2020.
Mr. Hassan said the government has approved 14 banks under political consideration since 2009 though there was no need for launching new banks.
It said a business group has bought 28 per cent share of a bank in the name of 14 organisations and 14 per cent share of another bank in the name of seven organisations.
Mr. Hassan claimed that the same business group now controls 14 banks in the country which could be possible due to political influence .
He cited another example of political influence that a private bank chairman has taken Tk 80 billion as loans from a bank against the names of various organisations, of which Tk50 billion has become 'bad'.
In the fiscal year 2014-15, there were 7,651 bank branches and there were 2,490 inspections during the period. But after four years in 2017-18, the central bank inspected 1,917 times while the branch number increased to 8,629.
Mr. Hassan alleged Bangladesh Bank had refused to cooperate with TIB in its research work.
TIB put forward 10-point recommendations in the webinar, including the need for bringing big changes in the central bank's board of directors as well as the positions of governor and deputy governors.
The TIB research paper also prescribed an initiative to form an independent banking commission, which has been under discussion for a long time.
The TIB suggested ensuring exemplary punishment for those involved in irregularities and corruption in the preparation and implementation of investigation reports.
Other recommendations include amending the Banking Companies Act-1991, giving central bank the full authority to control and supervise the state-owned banks; formulating specific policy regarding appointment and removal of board members, governors and deputy governors of the central bank; specific instructions regarding the formation of recruitment inquiry committee, duties and responsibilities, and recruitment process.
It also recommended increasing the number of private representatives (concerned experts such as financial sector and good governance) in place of three government officials in the board of directors of Bangladesh Bank; and amending or repealing all the sections in the banking related laws which are against the interest of the depositors and conducive to the establishment of family system in the banking sector.
TIB also suggested forming a panel through an inquiry committee to appoint directors of all commercial banks including the state-owned banks, and provision should be made for the appointment of directors of various banks.
It said that provisions should be made to prevent persons directly involved in politics from becoming bank directors and loans to bank directors should be approved through direct supervision of Bangladesh Bank.
According to the recommendations, rules should be made to keep provision against default loans suspended by the court; repeatedly rescheduling and restructuring the list of people who have frequently defaulted will have to be published.
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