BB changing techniques of supervision on banks

Bangladesh Bank (BB) is making strategic changes to the existing techniques of its supervision on banks for ensuring financial stability in the banking sector that saw some deviations.
Governor of the central bank Dr Atiur Rahman spoke about the initiative Saturday while inaugurating the annual banking conference 2014 organised by the Bangladesh Institute of Bank Management (BIBM).
The central bank is reported to have taken the latest move against the backdrop of some recent financial irregularities in the state-owned banks in particular, which threaten to taint image of the country's banking system and its regulator, too.
As part of its effort to ensure good corporate governance in bank management, monitoring has been heightened in the areas of responsibility and accountability of the management gurus of banks. They include the chairman, directors and the chief executives.
Their responsibility and accountability will be monitored in respect of dealings in financial, procedural, administrative and policy-related matters, according to the plan the governor unveiled before the bankers.  
"We're working hard to ensure good governance in the banking sector through strengthening our monitoring and supervision by using latest technologies," Dr. Rahman said.
The conference is an annual event to bring practitioners, academics and researchers on a common platform to share thoughts, ideas and research findings on banking.
The central bank chief also said internal controls structure of the banks have been sought to be strengthened and the process of risk identification, measurement and mitigation has been attempted to be streamlined in the light of international best practices.
With the massive digitisation of the central bank and the banking sector, the BB governor expected that the existing loopholes would be effectively plugged.
He noted that the banking sector in Bangladesh has grown substantially since independence in 1971, in tandem with an uninterrupted spell of steady, stable growth of the country's economy.
"Beginning as almost wholly state-owned sector making directed loans at prescribed interest rates, our banking sector has undergone successive rounds of major structural and regulatory reforms, transforming it to a vibrant private sector-led market-based banking system, largely shaking off the legacy of repayment default culture from the years of directed lending regime," the governor explained.
Mentioning different intuitive measures, the BB governor said: "Our movement towards sustainable banking, including financial inclusion ethos with inclusive and green banking along with mobile banking initiatives, have already paid us well and the strategy will be bolstered further in the coming days."
Regarding various developments in the country's banking sector, the governor said the growth of broad money (M2) as proportion of gross domestic product (GDP) rose to 59 per cent in 2013 from 48 per cent in 2009 while the overall banking-sector asset increased to 80 per cent from 59 per cent of GDP.
Besides, total credit-to-GDP ratio had increased from 46 per cent to 55 per cent during the period under review, he added.
Also, the total bank accounts, including school and mobile banking, stood at around 84 million by the end of 2013 from only nearly 38 million in 2009.
      The BB governor also said the central bank wants to bring every citizen under banking network through opening newer accounts.
Toufic Ahmed Choudhury, director-general (DG) of the BIBM, presented his keynote paper titled 'A review of the banking activities of Bangladesh' at the conference to show the overall state of affairs in the sector.
He said, "The BB is working to identify and safeguard the weaknesses and vulnerabilities in the banking sector of the country by shifting from compliance-based approach to forward-looking risk-based approach in regulation and supervision."
A total 22 papers out of 48 have been selected for presentation at the two-day conference.  On the first day, 12 papers were presented. The remaining 10 will come up today (Sunday).
Mr. Choudhury also said: "Having a set of prudent regulatory measures, effective supervision depends upon adequate power, sufficient resources and independence to foster good supervision."
In Bangladesh, he observed, the central bank is the true supervisor of the private sector and foreign banks only.
Regarding credit market, the BIMB DG said almost all banks face less demand for credits from borrowers and consequently they face excess liquidity problem due to sluggish investment and tighter lending policy.
"Permission for tapping foreign sources of financing may also be a reason for this excess liquidity of banks," he explained.
He also said the banks need to create more demand for their funds by covering a variety of borrowers in all geographical areas of the country. "Charging interest rate is also a factor which is required to be addressed."
Shah Md. Ahsan Habib, professor and director of the BIBM and chairman of the organising committee of the conference, also spoke on the occasion.
The Financial Express, country's lone financial daily, and Banik Barta are media partners of the event.
siddique.islam@gmail.com