Almost all the fourth-generation banks in Bangladesh were given licences on political considerations, reveals a study conducted by the Bangladesh Institute of Bank Management (BIBM).
While a few of these banks have shown promising performance, many are riddled with serious challenges, including liquidity crises, high non-performing loans (NPLs), reputation issues, and regulatory penalties, according to the study.
The study titled "Institutional Sustainability of Fourth-Generation Banks in Bangladesh: A Socio-Psychological Perspective" was presented at a seminar held at the BIBM auditorium on Wednesday.
Dr. Mohammad Tazul Islam, associate professor of BIBM, presented the findings on behalf of the research team, which included Dr. Md. Shahid Ullah, associate professor of BIBM; Dr. Mohammad Monirul Islam Sarker, director of Bangladesh Bank; and Mahmud Salahuddin Naser, director of the Monetary Policy Department, Bangladesh Bank (BB).
The seminar was chaired by Dr. Md. Akhtaruzzaman, director general of BIBM, while Nurun Nahar, chairman of the BIBM Executive Committee and deputy governor of BB, was present as the chief guest.
In her address, Nurun Nahar stressed the urgency of strengthening governance frameworks and enhancing regulatory oversight to improve the sustainability of the fourth-generation banks.
She called for addressing the systemic challenges, including political interference, liquidity crises, and rising NPLs.
The study highlighted that political influence in licensing has weakened the governance structure of many fourth-generation banks, leading to operational inefficiencies. Besides, poor corporate governance, unethical practices, and a lack of transparency in transactions have resulted in increased credit mismanagement and NPL growth.
It further noted that aggressive lending practices, combined with uncontrolled deposit rates, have distorted the competitive market structure.
The study established a strong correlation between higher Advance Deposit Ratios (ADR) and rising NPLs, showing that aggressive lending often compromises credit quality and financial stability.
The research pointed out several critical factors contributing to unsustainability of these banks. They include political interference in decision-making processes, weak enforcement of laws and regulatory oversight, legal loopholes exploited by politically connected defaulters and a short-term strategic vision by bank management and boards.
The study also laid emphasis on socio-psychological challenges, such as cultural norms that tolerate irregularities, fear of economic insecurity, and limited depositor trust. Weak judicial systems and inactive civil society organisations were identified as additional barriers to accountability and governance.
The paper also said that 64 per cent of respondents identified good governance as the most critical factor for institutional sustainability.
Some 60 per cent strongly agreed on the need for improved financial stability and regulatory monitoring, the study said, adding that nearly 60 per cent of respondents also believed there are too many banks in Bangladesh and that new licenses were unnecessary.
The study underscored the importance of normative factors such as professional ethics, education, and job satisfaction in improving institutional sustainability while identifying significant gaps in cultural and legal enforcement frameworks.
The study added the laws enacted by the ill-motivated politician-cum-businessmen lawmakers have intentional loopholes so that they can unduly influence the board and management of the banks and no stern actions can be taken against the defaulters.
The welcome address was delivered by Md. Shihab Uddin Khan, associate professor and director (Research, Development & Consultancy) of BIBM. Designated discussants included Md. Ali Hossain Prodhania, supernumerary professor of BIBM; M. Shamsul Arefin, managing director of National Credit and Commerce Bank PLC; and Md. Shafiul Azam, managing director & CEO of Modhumoti Bank PLC.
Senior bank executives, faculty members, media representatives, and academicians actively participated in the discussions, sharing their insights on addressing the challenges facing the banking sector.
The seminar concluded with a strong call for systemic reforms to ensure institutional sustainability.
After the country's independence in 1971, banking industry in Bangladesh started its journey with six nationalized commercialized banks, two state-owned specialized banks and three foreign banks.There are 61 scheduled banks in Bangladesh. Of them, six are state-owned commercial banks, three specialized banks, 43 private commercial banks (33 conventional and 10 Islamic banks), and nine are foreign commercial banks.
Again, based on the year of establishment, the banking sector is clustered into four generations. Banks incorporated in 1971-1990; 1991-2000; 2001-2012; and after 2013 are called first, second, third, and fourth generation banks respectively.
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