There is some anxiety about the banking sector because of many irregularities and mismanagement. Non-repayment of loans, increase in loan default, lack of monitoring in loan recovery and unwillingness to return money which was taken out from banks through manipulation are creating problems for the commercial banks. Bank management needs to be strengthened. Outside interference has to be stopped. Big scandals like that of Hallmark and Bismillah Group have to be stopped for ever. The Bangladesh Bank (BB) has to play the key role in this matter.
According to the central bank, Tk 35 billion of Sonali bank has been looted through the Hallmark scandal. The bank could recover only Tk 5.00 billion during the last two years. Cases have been filed against Hallmark to realise money. Recovery of money has become uncertain.
Bismillah Group has looted about Tk 15 billion from Sonali and BASIC banks. These banks could not recover any amount out of this. The Bangladesh Bank has got information about irregularities of Tk 30 billion in BASIC Bank. Past boards of directors of the BASIC Bank were reportedly involved in the scam. A number of big and small groups have also taken out billions of taka in the name of borrowing.
According to the Bangladesh Bank, corruption has increased in recent times in both private and government banks due to interference of members of board of directors. As the banks are not serious in recovering the loans, loan defaults have mounted to Tk 560 billion. Forgery has increased out of proportion in private banks due to excesses committed by the directors. Political influences were used in sanctioning big loans. Such loans are not repaid ultimately.
As per rules, approval of the central bank is needed in appointing managing directors of banks. But in recent times, the ministry of finance is appointing managing directors without any reference to the central bank. Here political consideration is given importance. This has resulted in bank forgeries. Many people have left the country after taking huge loans from banks after submitting false documents. The finance minister said in a statement in parliament that loan defaults stood at Tk 560 billion at the end of May, 2015. Of the amount, Tk 230 billion belonged to state-owned banks. Therefore, these banks are facing capital crisis.
It is alleged that bank officials are involved in bank forgeries. Forgery is rampant in state- owned banks. Unless these officials are punished, forgery will not diminish. Corruption is not decreasing due to political influence. Good governance has to be brought back to the banking sector. This is linked to good governance in the administration.
The Bangladesh Bank will seize a part of funds of those commercial banks which have failed to disburse agricultural loans according to the target. No interest will be given against such amounts. Targets are fixed by the banks themselves but they fail to disburse fund according to the target. There is stagnation in disbursement of agricultural loans. Loan recovery has also declined.
According to a circular issued by the Bangladesh Bank, the banks failing to disburse agricultural loans will have to deposit such funds with the Bangladesh Bank compulsorily. Banks were asked to open cells for agricultural loans. Necessary staffs were sanctioned to deal with agricultural loans. Banks say that they could not disburse funds as they do not have branches in many places. Banks are saying that they will have to give interest to depositors although the central bank will not allow any interest on such funds. The banks will be losers in such a situation.
The government's borrowing from the banking system increased nearly 88 per cent in the first 9 days of the current fiscal year partly to finance its budget deficit. Its net borrowing shot up to Tk 94.73 billion on July 1-9 as against Tk 50.41 billion in the same period last year. Most of the fund was borrowed from the central bank. The borrowing may increase further in the coming days to meet overall cash shortage. The government is set to borrow Tk 385.232 billion from the country's banking system through issuing both short- and long- term securities during the current year.
The government is reluctant to borrow from the IMF due to conditionalities but such borrowing would have added to the resources of the country. The IMF conditions would be for the good of the economy. The government borrowing from the banking system runs the risk of spending on unproductive purposes. The government is unable to generate enough resources in time for spending.
The Bangladesh Bank is taking an initiative to utilise the huge foreign exchange reserve. A fund of $200 million will be set up for this purpose. Another fund of $300 million is being established with the World Bank assistance. Short- and long-term loans will be provided from these two funds. The Bangladesh Bank governor addressed a pre-monetary policy press conference last Thursday and exchanged views with journalists. The central bank has a reserve of Tk 25 billion. Economists are in favour of utilising the reserve without keeping it idle. Export-oriented and environment-friendly industries will be provided loan from the central bank fund at a low rate of interest. The journalists suggested that the central bank should take initiatives to stop irregularities in the banking sector.
The writer is an economist and columnist.
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