The main problem of our banking industry is non-performing loan (NPL). In our country, the percentage of NPL is historically high. The feature and status of NPL in our banking industry is very peculiar and is the result of accumulating NPL over the last 50 years. The situation has now taken an acute turn. Neither appropriate provisioning nor timely writing off has been done and as a result, the amount of NPL has become enormously high. Moreover, so-called rescheduling or inappropriate restructuring facility has tried to disguise the problem of NPL making the situation even more complicated.
The situation has reached such an alarming stage that bankers do not dare to think about getting rid of NPL. Thus, NPL will not only deter the growth of banks, but also jeopardise the overall performance of the financial sector. Even the country's economic growth is bound to be adversely impacted because of the legacy of NPL.
The country will soon graduate from least developed country (LDC) to developing country status. To make the graduation process smooth, the NPL problem must be addressed on a top priority basis. And adding new banks before this is done may be suicidal.
STRENGTHENING REGULATORY CAPABILITY: One of our major banking sector limitations is that regulatory capacity has not been adequately strengthened. The central bank's monitoring role and ensuring stringent compliance with banking rules and regulations are not visible. They have been conducting typical audit of the commercial bank's operation, which has not produced any tangible result. Their punitive measures are not exemplary enough to prevent malpractice in this sector. At the same time, they failed to develop commercial bank as SRO (self-regulatory organisation). In the modern banking system, central bank compels the commercial banks to develop their own policies, procedures and measures, to put them in place and apply in their day-to-day operations. Moreover, central bank will be allowed to take action independently and without any external influence, which is a precondition for strengthening regulatory capability. At the same time, there must be clear demarcation between its role in the country's monetary policy and supervision of the country's banking sector. Of course, central bank may have good coordination and liaison with the government while its role in monetary policy; however, it must enjoy absolute authority and freedom in playing its supervisory role in the country's banking sector. Without strengthening regulatory capability, it is very difficult for Bangladesh Bank to properly monitor existing banks.
PROFESSIONAL DEVELOPMENT: Professional and competent bankers have not grown keeping pace with the development in our banking sector. There are thousands of bankers, but very few are competent. Even during the last two decades, innumerable promising young graduates with brilliant academic backgrounds have joined the banking profession. But they could not be groomed properly and consequently, the industry could not reap benefit from recruiting them.
Banking is a kind of technical profession like that of the doctors and engineers. Specialised knowledge, skill and expertise are required to successfully perform in this profession. Bankers cannot be created overnight as specific academic knowledge, extensive training, practical experience and learning as well as mentoring from a qualified banker is required to prepare a banker. At the same time, no bank can succeed without professional and competent bankers. Measures must be taken to develop required number of professional bankers before adding new banks to the industry.
REFORM COMMITTEE: With rapid development of banking sector, many loopholes, weaknesses, complexities and problems have been created in this sector. A comprehensive reform programme is required to be undertaken to streamline and discipline the country's financial sector. In this regard, a high-powered reform committee with specific TOR (Terms of Reference) and particular areas to be addressed must be constituted. Foreign consultant is not required for carrying out this kind of reform programme. This is our problem which is known rather well by our bankers and experts. Moreover, our earlier experience with foreign consultants is not good at all. FSRP (Financial Sector Reform Programme), CRM (Credit Risk Management), ALCO (Asset Liability Committee) were carried out with the help of foreign consultants. The result of these expensive programmes are now well-known.
In our country, there are many veterans retired from the central bank and commercial banks. They are highly qualified, experienced and very knowledgeable. A reform committee can easily be formed comprising some selected retired and, if needed, in-service bankers, economists, lawyers and accountants. However, help and expertise over the banking practice and procedures of developed countries may be needed and there are many Bangladeshi bankers who have experience of working in a developed country's banking system. Their help can be sought in this area.
Streamlining and strengthening the country's banking sector and bringing back discipline in this industry are a must before adding new banks to this sector. If more banks are allowed without carrying out appropriate reforms in the sector, the persisting problem will get aggravated, indiscipline will continue and more financial scandals may take place. So, the authorities concerned and the government should consider deferring the decision of allowing new banks and initiate, instead, an extensive reform programme of the banking industry.
Nironjan Roy is a Toronto-based banker.
[email protected]
