Liquidating problem banks is better than reorganizing as many of those are weakened through embezzlement beyond redemption, said an expert who thinks mergers and acquisitions alone are no fit cure.
Mergers won't solve the entrenched problems in Bangladesh's banking sector unless the government addresses the moral hazards and flaws in policy that bred such ills, he said.
Dr Saleh Uddin Ahmed, former governor of Bangladesh Bank, presents a to-do list for the government and the regulator to dispense as desperate remedies for the problems facing the banking sector.
Strict penalties for loan defaulters along with identifying those responsible for weakening the banks and punishing them adequately, making cautious move in order not to make strong bank weaker after merger, empowering the central bank to make decision are among the major dos he suggests.
"The banking sector needs to be controlled with iron fists," he says while delving deep into to what might have led to the accumulated problems.
"Due diligence is necessary to identify liabilities. Loan write-off of the weak bank should be avoided," he told the audience at a mock parliament staged Saturday on the FDC premises in the capital, Dhaka
Debate for Democracy (DfD) organised the debate competition on 'Merger of banks would strengthen good governance in banking system'. Hassan Ahmed Chowdhury Kiron, chairman of the DfD, chaired the programme.
Speaking as chief guest, Dr Saleh Uddin said Bangladesh Bank cannot avoid the responsibility for "unrest" in the financial sector.
"BB's policy flaws have led to approval of so many banks in Bangladesh under political considerations, which has facilitated financial malpractice," he said in a strongly worded critique of policies and consequences thereof.
Those banks are now turned into problem-ridden ones due to financial embezzlement by owners and allowing family members as bank directors, he said to specify what went wrong and how.
"In Bangladesh, a person is involved in multi-tasking such as politicians, businessmen, owners of media house and owner of banks, thus triggering corruption," he said before spelling out what is to be done for a turnaround.
Political will is the major factor to bring back normalcy in banking system, he says.
"Banks are not liquidating. There are domino effects in the sector where the BB is cutting Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) giving a palliative treatment," he notes.
The ex-governor deplores "inaction" of the central bank on the audit report of banks that remains pending in the BB for long while some of the directors of banks often pass their debts among themselves.
He thinks non-performing loans cannot be managed by asset management companies as it has not been successful in other countries too.
"Loan defaulters are considered socially abandoned and restrained from availing services in other countries while they are privileged in Bangladesh," he says.
Turning to macroeconomic front, he observes that concentrating on only higher GDP growth is not the solution. "Government needs to change its development strategies to reduce inequality and ensure good governance."
Incidentally, gaping income inequality in the country for what economists say over-concentration of wealth in the upper segment of the population remains a concern.
Hassan Ahmed Chowdhury Kiron placed ten-point recommendations that include upholding depositors' confidence in recently merged two banks, Exim and Padma.
He also recommended the formation of a special tribunal to realize the funds embezzled by anonymous persons, forming independent banking commission, exposing the loan defaulters' names in the National Parliament, ban on overseas tour, and intensifying monitoring etc.
In the debate competition, BGMEA University of Fashion and Technology won by defeating Prime University.
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