Battle is out in the open

The Bangladesh Bank (BB), the banking sector regulator, has apparently got a tough client to handle.

Never before, a bank or a financial institution took the BB to the court of law for imposing fine.

The Farmers Bank Limited (FBL), a fourth generation bank that commenced its operation in 2013, has filed a writ petition with the High Court challenging the imposition of Tk.1.0 million fine by the central bank on it for alleged concealing of information about its credit distribution.

 On January 11 last, a division bench stayed the effectiveness of the BB's decision to levy the fine on the FBL for four months.

In fact, the battle between the banking sector regulator and its subject has taken a nasty turn and it is now out in the open.  

A couple of days after the court's stay order, the central bank, in exercise of its power under the relevant law, appointed an observer to the FBL.

The appointment of observers to both private and public sector banks has become more of a common practice these days in view of the lapses detected in many areas, including loan operations.

At the moment as many as 15 banks and non-banking financial institutions have the BB-appointed observers who are regularly monitoring their operations. Apart from seven state-owned commercial and specialised banks, six private banks and two NBFIs have got BB observers.

True, neither of these institutions, for obvious reasons, would cherish the central bank decision to appoint an observer since it someway or other gives a wrong signal to their all types of clients. Yet the banks concerned have not opposed the move, for the BB has always taken the move remaining within the bounds of law.

But some recent developments might lead one to believe that the FBL could not accept the central bank actions, including the appointment of an observer.

Last Sunday, the parliamentary standing committee on public accounts suggested the office of the comptroller and auditor general (CAG) to carry out special audit on the BB.  The committee has also decided to discuss the banking sector in detail in its next meeting, scheduled for January 28 next, where the central bank governor or his representative will be invited. Coincidentally, the chairman of the FBL is also the chairman of the parliamentary committee in question.

But one may be wondering what has gone so wrong with a three-year old bank that the central bank has been compelled to levy fine and appoint an observer.  

If the findings of a special investigation carried by it were true, then the central bank could hardly avoid taking a few actions against the errant bank.

The FBL sanctioned loans to a number of firms which had earlier defaulted on repayment of loans from state-owned banks. And to facilitate the sanctioning of the loans, the bank, allegedly, itself managed fake Credit Information Bureau reports, a number of news items said quoting the BB investigation report. Some firms managed loans from the FBL and regularised their classified loans with other banks.

Besides, the FBL, according to the BB report, resorted to window dressing to show inflated profit. It allegedly showed a number of loans as investments as part of that move. If that is the case, then it is a gross violation of banking rules.

If a bank or any other financial institution does involve itself in this kind of irregularities, it does not take too long a time to face troubles. The FBL, it seems, is already in trouble. Recently, the bank has borrowed from the central bank under the high-interest bearing special repo facility.

Going by the state of affairs with the country's banking sector, the demand for strengthening the regulatory operations by the central bank has been coming from all directions. The presence of the non-performing loans, according to the BB statistics, in the sector is high. The volume of NPL would be even higher if the whole truth about banks' loan operations could be unearthed. The extent of window dressing varies from bank to bank. But it is suspected to be even higher than what is generally assumed.

The public sector banks are in the forefront of the rot. But some private banks are not lagging behind. Without proper monitoring and inspection, the remaining ones, including the new banks, would soon get on the bandwagon the wrong way.

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