Fixing the rot in the banking sector

The banking sector has been witnessing ugly events following the ouster of Sheikh Hasina's government. Slogan-chanting processions, the abstention of high officials in the face of protests by employees, and incidents like shootouts are now common events in a section of banks. Even the country's central bank is gripped by acts of indiscipline, as the governor and his deputies have resigned for fear of reprisal.
What has been happening in the banking sector is the inevitable outcome of all the irregularities that have reigned supreme during the past one-and-a-half decades. The Awami League government either overlooked or extended support for unwanted acts that have eaten into the vitals of the all-important banking sector.
On Sunday last, a group of armed people, allegedly despatched by the S.Alam group, clashed with the employees of Islami Bank in front of the bank's head office at the city's Dilkhusha and, at one stage, fired gunshots indiscriminately, injuring six bank officials. Tensions are running high in the bank as its old employees and officials want to remove the people employed by the management installed by the S. Alam Group and reconstitute the bank's board of directors.
Unrest is also reportedly brewing in some other banks, including the state-owned Sonali and Janata and private banks, namely SIBL, IFIC, UCB, and Uttara. The country's private banks have hardly witnessed this kind of unrest in the past. The state-owned banks are familiar with troubles such as strikes and agitation that happened in the 1980s and 1990s.
The cronies of the immediate past regime have sucked most of the state-owned banks dry with the support of the administration. That was not enough for them. They either created their banks or sneaked into the existing ones and took control of those with the government's help. And how these people who plundered the depositors' money in billions is now a much-talked-about issue.
Sheikh Hasina's government allowed a few to launch new banks one after another, creating a sort of overcapacity in the banking sector. Economists and veteran bankers had opposed the creation of so many banks, but the government was found to be adamant about creating an unhealthy situation.
It did not stop there. Suddenly, a business group appeared on the scene and, with the administration's help, grabbed the country's largest private bank that operates on Shariah-based principles. That was the beginning. Gradually, the business house took control of more than half a dozen banks and financial institutions. The banking sector regulator---the Bangladesh Bank--- either remained indifferent or extended support, tacitly or otherwise, to the act of grabbing so many financial entities.
The takeover of the Islami Bank was an unprecedented event. A powerful intelligence agency presided over the transfer of a specific volume of shares of the bank and the resignation of the then-managing director through intimidation and coercion. The Bangladesh media knew about the events but preferred to remain silent. But, the Economist, the internationally -reputed news magazine, ran a full-page story on the grabbing of the Islami Bank and other relevant developments. As the government of Sheikh Hasina had the habit of ignoring such reports, the acts of plunder of depositors' money and other irregularities continued unabated.
Before the start of grabbing Islamic banks by a particular business house, the local newspapers carried stories of how Abdul Hye Bacchu had looted the BASIC Bank. There were other loan irregularities in many other private and public banks. The government and the central bank seemed determined to allow a few to loot the depositors' money. It is the BB's responsibility to keep watch on the operations of all banks and take punitive actions if they go off track. Instead of taking such actions, the regulator has helped some banks, particularly those under the control of the controversial business group, to be more delinquent in all matters, including sanctioning and disbursement of loans.
For instance, the central bank extended massive liquidity support to five Islamic banks, primarily owned by the business group. Media published reports of irregularities in loan disbursement by these banks. Based on the findings of its relevant department, these reports could hardly deter the BB from extending such support through high-powered money. The immediate past governor has been instrumental in offering all the irregular support to a section of banks. He would claim one day that he had to indulge in irregularities due to pressure from the government. But the fact remains that unscrupulous political governments usually choose loyal people as the heads of regulatory and some other essential institutions so they (the loyalists) would carry out their instructions without any question. Had the immediate past governor of the central bank been a man of integrity and honesty, he would have either resisted all irregular directives or resigned.
The rot has gone too deep into the banking sector, the most vital one of the economy. It needs urgent remedial actions and reforms. The interim government is yet to settle down. It has to accomplish many tasks to strengthen various structures of the State. The immediate task of the interim government should be reforming the judiciary and the banking sector. Making a few changes in the judiciary would not help attain the objectives of the recent mass upsurge of unprecedented nature. The judiciary has to be independent so that no one in the government can influence its operations.
This is equally true for the banking sector. The Bank Company Act of 1991 and the Bangladesh Bank Order of 1972 have undergone changes on several occasions. Let there be a few more changes to suit the current demand. A banking reform commission should be formed without further delay for the greater interest of the economy.

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