Banking sector drifts like a ship sans radar amid governance deficiencies as the central bank cannot exercise its autonomy, experts said Thursday and pinpointed a lack of accountability and transparency in operations.
At a CPD meet held here to reveal findings of an anatomy on the country's banking sector they observed that much of the accumulated crisis in banking was stemming from lack exercise of the autonomy of the central bank as the regulator.
Fundamentals of the country's commercial banks continued weakening mainly because of regulatory "failure" of the central bank, said the economists, lawmakers, businesspeople and other professionals.
In absence of the effective or timely steps by the Bangladesh Bank (BB) to uphold corporate governance in the banking sector, the volume of stress assets in banks continues surging that keeps atrophying the once-stronger banks, according to them.
As a matter of fact, the trust of the people continues dampening on the country's banking system in recent times, which is not a good sign for the economy as a whole, they said.
To get over the situation, they also suggested that the central bank should not change its regulatory decisions too frequently and properly exercise its autonomous power without bowing to any vested quarter to ensure good governance in the financial sector.
The concerns and suggestions came at a dialogue titled 'What lies ahead for the banking sector in Bangladesh?' hosted by local think-tank Centre for Policy Dialogue (CPD) at a city hotel on Thursday. It was moderated by its distinguished fellow Dr Mustafizur Rahman.
Speaking at the meet, former BB governor Dr Salehuddin Ahmed said there was a regulation that if any entity of a business group became defaulter, the business group will not be eligible to get credits from the banking system.
But now that rule is changed. All other entities of a business group excepting the one that defaulted are eligible to get formal credits. It means a business group will take loans and become willful defaulter and use other arms to get loans, he said.
"Is it a right decision?" He posed the question.
The former central bank governor notes that the banking regulator keeps changing decisions too frequently issuing too many circulars.
"During my 4-year time in the central bank, I did not issue even one-tenth circulars. It means the BB's recent policymaking decisions are wrong," he told his audience.
Talking about the forex market, the former governor said the pressure on the foreign-exchange reserves was felt 2-3 years ago but the central bank did not take any measure to devalue the local currency although countries like India, Malaysia and Indonesia did it on a regular basis to mitigate the shocks.
But the BB, going against proper steps, kept the exchange rate at Tk 82 and lost $12 billion in the process, which mounts extreme pressure on the reserves of foreign currencies, according to him.
"Now the central bank introduced crawling peg. Then why it did not allow crawling of the prices over the months. I think it would happen if you don't take decision in proper time," he said.
Likening the central bank to a platform like cooperatives, Mr Ahmed said the central bank is taking decision in consultation with the shareholders of the banks amid pressure from the businesspeople.
There was pressure from the politicians when he was in charge of the regulator but he engaged with the politicians and kept arguing with them before sticking to their decisions.
"The BB has enough autonomy but it has to be properly exercised and gained," he asserted to upend common wisdom that its hands are tied.
President of the International Chamber of Commerce (ICC), Bangladesh Mahbubur Rahman told the meet that the CPD had long been identifying the governance-related problems in the banking sector. "But, unfortunately, there is no one to listen to that. Sometimes, if it does not suit me, I would tell them anti-government."
Talking about the independent directors in banks, the eminent business leader said they are not independent in a real sense of the term. "They are dependent on the board of directors because they cannot deliver what they are supposed to deliver."
Referring to a new law, he notes that owners cannot represent on the board of banks and financial institutions. Only non-owner can be a member of the board of directors.
"I make investment and take share of loss and profit but somebody else will represent the board with limitation of the tenure and so on. So, the word good governance is altogether missing in our dictionary," he told the audience about what goes wrong in his view.
The veteran business leader thinks money laundering and siphoning cases should not be taken into NPL considerations because "the money was taken not to pay back".
"At least 30-40 per cent of those cases are there that are never to be returned to the bank because the money has already been consumed," he says about the conundrum in state of lending and bank operations.
Mr Rahman points that one individual is having control over 6-7 banks violating the regulations. "Now, the National Bank is added to them. The number-one Islamic bank has gone down the drain for the individual who now takes control over the second-largest private-sector bank. These are happening and you (BB) are not addressing this."
Former minister and currently member of the parliamentary standing committee on the ministry of planning MA Mannan said the general people are unhappy and concerned about the banks.
About the NPL he said the bank officials who are involved in the loan-screening process should be held responsible for the non-performing assets and dealt with accordingly.
He feels the need for intellectual consensus on some national issues because economy is a matter of concern to everyone. "The scoring mentality for narrow and immediate political gains can be dangerous."
Raising question over the central bank's role, Jatiya Party lawmaker Barrister Anisul Islam Mahmud said they came to know that 10 banks became very weak suddenly on one morning.
"My complaint is against the regulator who did not perform their duty properly, leading to the situation. NPL is not a new issue. It has existed in other countries, too. My point is why you (BB) did not take corrective measures in these banks," he said.
Mr Mahmud, also deputy leader of the opposition in parliament, was very critical over developments regarding the asset-management company (AMC) to reduce the ratio of NPLs in banks.
He said the concept of AMC in Bangladesh will be a "bogus" thing and it will destroy the banking industry. It is nothing but satisfying the IMF with achieving the global lending agency's condition regarding the NPLs.
He notes the contribution of RMG sector behind Bangladesh's macroeconomic growth is huge but recently the central bank hinted at gradual phasing out of the incentives that the sector is getting. "Can you (BB) really understand the impact it would have on the economy? I think BB is becoming a useless organisation. This is the extreme word I am using."
Mohammad Muslim Chowdhury, former Comptroller and Auditor General of Bangladesh, points out that there are lots of campaign about the offshore banking in terms of investment, return and repatriation opportunities currently happening. "It should be well-researched to see whether these could turn into black-hole."
Former chairman of the Association of Bankers, Bangladesh (ABB) Mohammad Nurul Amin and journalist Syed Ishtiaque Reza, among others, spoke at the dialogue.
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