Instant regulatory intervention in governance failure, bad lending

A regulatory watch is set to scrutinize each of bank loans worth Tk 200 million at the minimum to check whether the lending is covered with adequate collateral as failsafe measure.
Bangladesh Bank (BB) Governor Dr Ahsan H. Mansur said Thursday, unpacking series of actions meant for disciplining the banking sector, ridden with wonton wrongdoings of the past.
As part of the central bank's move to establish governance in the country's banking industry that has come under serious pressure due to mounting NPL (non-performing loan) buildup, the governor said the regulator will verify it through a third party to detect any possible abuses in lending.
The BB governor shared the governance-ensuring package plan at a seminar on 'Banking Sector Reform: Challenges and Way Forwards' organised by Economic Reporters' Forum (ERF) at its auditorium in Dhaka.
The ERF President, Doulat Akter Mala, chaired the seminar where Centre for Policy Dialogue (CPD) executive director Dr Fahmida Khatun and Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman were also present.

"If any abuse in lending is found, the officials and board members involved in the loan-approving process will be held accountable for the non-compliance matter," the governor warns.
He says they have been talking about governance and governance in the banking sector for years. "But what have we done in establishing governance? Nothing. We'll be strictly following compliance to ensure sustainable turnaround of the industry."
Simultaneously, the BB governor says, they would start implementing RBS or risk-based supervision in all the commercial banks from next month that will help both the management and the regulator to assess performance of the banks.
Dr Mansur, who took charge of the central bank leadership soon after last year's mass uprising that toppled the Awami League governing regime, says they have decided to train 50 central bankers on forensic-auditing skills because there is no firm having forensic-auditing expertise apart from KPMG Bangladesh.
The governor also addresses recent consolidation moves in the sector, saying depositors of the five merged banks would get their money back soon.
He holds the hope that the five banks merged in one would be able to make some sort of profits within their first year of operation.
Apart from the merged banks, he says, there are some banks struggling which will be given time for their turnaround. "If they fail, we would apply the resolution ordinance."
About non-bank financial institution (NBFI) sector, Mr. Mansur says nine non-compliant NBFIs would be liquidated under the regulator's resolution plan.
"Shareholders of those institutions will not receive anything as the regulator would declare net asset value of the institutions zero but depositors will get their money back," he told the economic reporters.
According to him, the banking regulator has a plan to raise gross foreign-exchange reserves to $34 billion or $35 billion within this year without any support from multilateral lending agencies like the IMF (International Monetary Fund), the World Bank and the ADB (Asian Development Bank).
According to the BB data, the country's gross forex reserves stood at $32.57 billion as of December 18 this year, but under the IMF's BPM6 method, the figure was $27.87 billion.
Syed Mahbubur Rahman, the top executive of Mutual Trust Bank, told the meet growing NPL buildup becomes a serious concern for banks. But, the volume of NPLs would come down significantly by the end of this month if commercial banks properly implement policy support and partial write-off facility given by the regulator.
The experienced banker said the banking industry is being regulated by two entities - BB and FID (financial Institutions Division). "There should be one regulatory body to ensure level playing field for all banks," he said.
He appreciates that the interim government has been taking various reform moves to bring stability in the financial sector. "It needs to be taken forward by the next elected government."
Executive Director of CPD Dr Fahmida Khatun says full BB autonomy needs to be ensured for continuation of the reform activities in the coming days.
Calling upon the political parties which would participate in the upcoming general election, she said, "The parities should have incorporated their position in respect to ongoing reforms in their election manifestos."

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