Banks lying "clinically dead" and on the brink, surviving only through bailouts, should be allowed to close down, recommends a local think-tank in exhaustive redemption plans for banking and finance.
For riddance from such problem banks, the Centre for Policy Dialogue (CPD) suggests that the interim government formulate an exit policy with provision of protection for depositors' money.
A white paper detailing the corruption and scams in Bangladesh's banking industry and identifying those accountable for such rot has also to be published, the policy think-tank told journalists at a meet in Dhaka on Monday.
The CPD also stresses forming a goal-specific, time-bound, transparent, unbiased, inclusive and independent banking commission to bring transparency by ending the prevailing situation.
Getting to the root causes of the manifest problems, and taking credible measures for improving the situation sustainably are also suggested.
"We want publication of white paper detailing all scams and corruption and identifying the reasons and accountable persons behind the corruption," said Dr Mustafizur Rahman, Distinguished Fellow of the CPD, at the press conference.
Shedding light on the tip of the iceberg of alleged corruption and fund flight, the Centre said during 2008-2023, Tk 92.26 billion, equivalent to 12 per cent of the national budget of FY24 or 2.0 per cent of the GDP of FY23, was embezzled in 24 major banking scams.
At the event, held at its office by fronting the banner 'Bringing Discipline in the Banking Sector: What Should be Done Immediately', the CPD made a major plea for immediate shutdown of the Financial Institutions Division (FID) of the Ministry of Finance (MoF) immediately and investigating all current and former officials of the FID for any wrongdoing.
"The mandate of the Financial Institutions Division (FID) is directly contradictory to the Bangladesh Bank Order 1972 (P.O. No. 127 1972) since it allows FID to exercise its authority to oversee Bangladesh Bank's governance," said CPD Executive Director Fahmida Khatun.
Citing an example of misdirection in banking and finance, the CPD said in 2017, a single corporation gained control over 7 private commercial banks in Bangladesh.
It said, quoting news reports, that S Alam Group took out about Tk 30 billion in loan from Islami Bank Bangladesh Ltd in 2022.
"A single individual or group of individuals should not be allowed to obtain majority ownership of more than one commercial bank," the CPD recommends.
Also, if one company in a group of industries defaults on loan repayment, companies in the same group of industries should not be allowed to take new loans.
The policy proponent notes that there had been an erosion of public trust in the banking sector due to the continuous deterioration of the health of the sector and inadequate measures taken by the policymakers of the now-fallen government.
"Sporadic measures were not successful since the nature and depth of the problem require comprehensive due diligence and structural reforms-and reforms must be backed by political will as there will be resistance from the vested-interest groups."
The CPD also advocates for the Bangladesh Bank governor and deputy governors to be selected without ties to the legislature or public service, in line with the Bangladesh Bank (Amendment) Act 2003, which prohibits current or former government officials from holding these positions.
They also note that in the past 15 years, Bangladesh Bank governors had allegedly aided vested-interest groups by ignoring rules or altering laws in their favour.
"These instances should be investigated and concerned governors should be made accountable."
To prevent such practices, the CPD recommends that new governors and deputy governors should not be former or current government officials.
Fahmida Khatun emphasized that Bangladesh's banking sector faced with significant challenges, including institutional, governance, management, and operational weaknesses, which have worsened in recent years.
The think-tank criticised the 2013 approval of licences for nine new private commercial banks granted to politically influential owners, including a former mayor.
They urged that no further bank licences be issued on political grounds without a thorough assessment of the economy's needs. Also recommended is closing down banks on the verge of collapse and replacing the management and boards of underperforming banks.
The CPD also highlighted concerns about the concentration of bank ownership, citing that in 2017, a single corporation gained control of seven private commercial banks in Bangladesh.
On the issue of illicit financial flows, the CPD calls for strengthening the Bangladesh Financial Intelligence Unit (BFIU) to prevent illegal outflows and the reentry of laundered money, which could destabilize the interim government or cause unrest.
They note that between 2007 and 2014, Bangladesh experienced illicit financial outflows ranging between $47 billion and $67 billion, according to the Global Financial Integrity (GFI) Report 2005-2014.
Lastly, the CPD stresses the importance of integrity and timely data availability, urging that reports and data on individual banks and financial institutions be published regularly and made publicly accessible. It also recommends that all commercial banks comply with mandatory BASEL III disclosures in a timely manner.
The Bankruptcy Act should be amended to include corporate bankruptcy and cross-border bankruptcy following the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency
Main restriction of Bankruptcy Act is that it only covers individuals rather than corporations or cross- border bankruptcy. Hence, large defaulters are largely out of its reach.
According to Bangladesh Bank roadmap for reducing NPLs, released to the media in February 2024, 72,543 cases were pending with the Money Loan Court, with an outstanding amount of BDT 178.27 billion.
"Efforts should be made to recover NPLs through out-of-court procedures such as Alternate Dispute Resolution (ADR)."
The CPD says the Banking Company Act should be amended so that there is only one member from one family on the board of directors, and the tenure of each director should be limited to 3 years, with each director being allowed to serve a maximum of two terms in their entire lifetime.
The briefing was attended by CPD Research Director Khondaker Golam Moazzem and Senior Research Fellow Towfiqul Islam Khan, among others.
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