The Centre for Policy Dialogue (CPD) pointed out that there has been an erosion of public trust in the banking sector due to the continuous deterioration of this industry’s health and inadequate measures taken by the policymakers.
Besides, banks are being used as vehicles by the financial oligarchy to reach their goal under crony capitalism, said the Centre for Policy Dialogue (CPD).
At a dialogue programme titled, “What lies ahead for the banking sector in Bangladesh?” held at a city hotel on Thursday, the local think tank recommended bringing down non-performing loans (NPLs) through a comprehensive framework.
To ensure good governance and accountability in the banking sector, the government should take political decisions at its highest level, because banking is a very important sector for an economy.
Bangladesh Bank’s autonomy must be ensured to help implement the roadmap given by the central bank, said CPD Distinguished Prof Mustafizur Rahman. CPD Executive Director Fahmida Khatun presented the keynote on the banking sector at the event.
She added, “Although defaulted loans in banks are said to be around Tk 1.5 lakh crore, if you add reschedules, write-offs, pending loans in cases, the amount would be around Tk 4 lakh crore.
“When financial capital becomes concentrated into the hands of a few, monopolies extract supernormal profits at the cost of the ordinary people’s welfare. The monopolisation of banking is usually accompanied with deterioration in governance.”
Fahmida added, “Banks are being used as vehicles for reaching their goal of financial oligarchy under crony capitalism.”
Former planning minister and now Chairman of Parliamentary Standing Committee on Ministry of Planning MA Mannan recommended that the government should be more careful in giving licenses to new banks.
“There must be political goodwill and consensus among all political parties to overcome the issues,” he said, adding, “Parliamentary committees should be made strong and effective. The public from cities to villages are tense about the banking sector, but they are not worried.”
Central bank’s autonomy
Speakers at the event discussed that behind the lack of good governance in the banking sector is the lack of autonomy of the central bank. To reduce the political pressure on the central bank, some spoke in favour of abolishing the finance ministry’s banking division.
Former governor of the Bangladesh Bank Salehuddin Ahmed said, “Due to the Bangladesh Bank’s frequently changing decisions, instability in the market is increasing. At a time when every country devalued their currency against the USD, Bangladesh did not do it.
“It had a negative impact on our economy. The Bangladesh Bank has failed as a regulatory agency.”
He continued, “A bank does not operate similarly to other companies. It operates on the depositors’ money. The Bangladesh Bank has now become like a cooperative society. Businessmen, bankers decide on owners. It should be an actual regulatory body.
“Regulation and policy making should be separated.”
CPD recommended that the autonomy of the central bank should be upheld in line with the Bangladesh Bank Amendment Bill 2003. Recapitalisation of poorly governed commercial banks with public money should be stopped, it added.
CPD Recommendations
CPD recommended that a comprehensive reform agenda should be devised and implemented to overcome the banking sector's ongoing challenges. The reform agenda should aim to reduce the NPLs, and establish good governance in the banking sector.
Appointment of board members of commercial banks should be depoliticised and based only on qualifications and experiences. Loans should be sanctioned based on the Central Bank’s “Guidelines on Internal Credit Risk Rating System for Banks.”
Former CAG of Bangladesh Mohammad Muslim Chowdhury said, “There is a problem between the board and management of the banks. Efforts should be made to eliminate it.
“In line with this, it is better if the central bank’s supervision and monitoring can be separated. The defaulted loans are around Tk 4 lakh crore but out of this 30 per cent to 40 per cent are fraudulent and should file a criminal case against them.”
An exit policy for troubled banks should be formulated by protecting depositors’ money in those banks. No more licenses for new banks should be given on political grounds without pragmatic assessment of the need for the economy.
A conducive legal and judicial environment should be created. The number of judges dealing with the Financial Loan Court Act 2003 and Bankruptcy Act 1997 should be increased to ensure speedy disposal of loan default cases and to reduce the backlog.
The Bankruptcy Act should be amended to remove mortgage-related loopholes that cause delays in settling cases. Efforts should be made to recover NPLs through out-of-court procedures such as Alternate Dispute Resolution.
NPLs should be brought down through a comprehensive framework.
To put simply, an Asset Management Company (AMC) is a public, private, or joint entity that manages non-performing assets removed from the financial system to maximise the recovery value of these assets.
In this context, Banking and Insurance Department Prof Dr Md Shahidul Islam of Dhaka University said, “The AMC should be given to insurance companies instead of the government, because they have a lot of cash.”
