Genuine banking reform elusive without accountability: Experts

FE REPORT
Genuine reform in Bangladesh's banking sector will remain elusive unless those responsible for looting banks under political protection during the past Awami League regime are held accountable, experts said at a seminar in Dhaka on Saturday.
They cautioned that recapitalising the collapsing institutions without legal action simply repeats a decades-long cycle in which depositors and taxpayers bear the cost of misconduct by politically-connected borrowers.
The seminar, titled "Bangladesh's Banking Crisis: The Way Forward", was organised by the Cosmos Foundation, the philanthropic arm of the Cosmos Group, with United News of Bangladesh as media partner.
Discussants said the banking sector's current fragility stems less from technical shortcomings and more from entrenched political interference.
They highlighted unchecked crony lending, concealment of default figures, manipulation of financial statements, and systematic weakening of regulatory oversight as factors that steadily eroded confidence since 2017, when ownership of several Shariah-based banks changed under political patronage.
Bangladesh Bank Deputy Governor Nurun Nahar, speaking as the chief guest, said the deterioration of the five Islamic banks now being merged began after their controversial takeover in 2017.
"Before that point, none of them faced such acute distress," she said, noting that after governance changed hands, "money was spirited out of the banks, exposure limits were breached, and board-level indulgence replaced prudence," triggering the crisis currently being addressed through forced mergers.
The deputy governor stressed that the central bank was compelled to merge the banks to protect depositors and avert systemic collapse, but warned that consolidation alone cannot fix structural decay.
She admitted that successive Bangladesh Bank officials faced immense political  pressure, noting that resigning "would merely have paved the way for another person willing to bow to instructions."
Speakers heavily criticised recapitalising distressed banks with public funds, arguing it grants impunity to looters while forcing ordinary citizens to underwrite their misconduct.
Using taxpayer money to inject liquidity into banks stripped by politically connected borrowers is equivalent to punishing victims, they said.
Towfiqul Islam Khan of the Centre for Policy Dialogue said the banking crisis is fundamentally political, not technical.
He suggested that if central bank supervisory shortcomings contributed to sector-wide deterioration, a portion of its recent profits -- Tk 220 billion last financial year alone -- could absorb merger-related losses instead of tapping taxpayers' money.
For comparison, he noted that Bangladesh Bank's profits far exceed those of the highest-profit commercial bank, which posted Tk 7.0 billion in the same period.
Prof Nehal Ahmed of the Bangladesh Institute of Bank Management and MGK Jewel of the Asian Development Bank, who delivered the keynote paper, said reforms will fail without freeing the central bank from ministerial pressure and enforcing board-level accountability.
They warned that without credible enforcement, mergers will merely repackage existing problems in a different legal wrapper.
Prof Nehal warned that once previously concealed bad loans are fully recognised, the volume of non-performing assets could surge to levels adversely affecting Bangladesh's sovereign and credit ratings.
He emphasised that fallout would not be limited to the five troubled banks but could destabilise the entire sector.
Former executive director of Bangladesh Bank Abdul Mannan highlighted the extraordinary rise in defaulted loans -- from Tk 220 billion in 2008 to roughly Tk 500 billion in 2024 -- calling it "a governance failure of historic proportions."
Other speakers said banks had long served the interests of oligarchic borrowers rather than small depositors, while state agencies frequently interfered in operational decisions to the detriment of financial discipline.
They also questioned the logic of injecting Tk 200 billion of public money into the troubled banks without mechanisms to prevent repeated looting. "Banks have been looted before, recapitalised before -- what assurance exists that this cycle will not be repeated?" one asked.
Criticism extended to Islamic banking, with experts saying mismanagement and political capture had left the sector far removed from its ethical foundations. Calls were made for depositor insurance and judicial reforms to ensure faster enforcement of claims.
Assuring small depositors, Deputy Governor Nurun Nahar said around 90 per cent of account holders with less than Tk 200 billion in the five merging banks would soon receive refunds.
She emphasised that protecting ordinary depositors remains a top priority amid ongoing reforms and consolidation.
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