World Bank for new laws to deal with corporate distress

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Nazmul Ahsan
The World Bank has urged the central bank to enact regulations to deal with corporate distress and devise liquidity support mechanism for the country's banking sector, officials said Saturday.
The development lender has also suggested amendments to the Bangladesh Bank Order (BBO), 1972 and Bank Company Act (BCA), 1991 to ensure more transparency and accountability in financial institutions.
The suggestions, contained in a report of the Bank, have recently been handed over to the government and the BB after a mission of the WB visited the country and evaluated the strength and weakness of the central bank, officials said.
'BB needs to put in place a crisis response and liquidity support mechanism for the banking sector," the report said.
"Apart from that, it needs to also take steps to ensure preparedness for dealing with corporate distress. Currently, there is no formal rehabilitation mechanism for viable companies in distress,' the report said.
Top officials in the Ministry of Finance (MoF) said the corporate distress issue is being examined by the BB and the ministry.
The government is planning to ensure "uniform regulations" to bail out good business firms in case they become sick or default on loans, an official said.
"We won't do it case by case basis. There should be standard rules for all corporate houses," he added.
"There must be a guideline or mechanism to deal with any bankruptcy faced by any local corporate entity so that investors don't feel shy to invest in big companies,' he said.
Bureaucrats in the MoF, however, said the issue is not "that grave" as far as the corporate situation in Bangladesh is concerned.
BB Officials said strong political will and clear vision are needed to strengthen the central bank's regulatory arms by enacting new laws and amending the BB Order and the BCA.
They said a number of suggestions put forward by the WB are related to BCA. The proposals are aimed at improving overall governance in the banking sector.
Citing example, he said, the WB has asked the BB to keep the number of bank directors to maximum 13 by amending the BCA.
Currently, there is no hard and fast rule on the composition of bank boards in the BCA.
The WB has recommended raising the amount of fines by 10 to 20 times for a number of banking frauds. The fines are nominal for the same crimes in the current Bank Company Act.
The WB has also suggested that the BB enter into deals with all banks, including public and private financial institutions, which would fail to meet minimum capital adequacy requirements and bad debt provisions.