Banking sector conundrum

Amid renewed controversy regarding the banking sector, Prime Minister Sheikh Hasina on November 27 sought report on the real scenario of the banking sector. Her instruction followed a prompt action by the Bangladesh Bank that summoned the Managing Director of Islami Bank Bangladesh Limited (IBBL) on November 28 to ask him about the alleged lending irregularities.

The immediate action of Bangladesh Bank points to the fact that how seriously the Banking and Finance Division of the Finance Ministry has taken the instruction of the prime minister. Hopefully the central bank and the Banking and Finance Division will put their all efforts together to bring disciplines in the banking sector.

We believe that the instruction should have been given much earlier as the sector has already sunk in the mire of irregularities, loan scam, defaulted loan or non-performing loans and many other crises. Now, it has just resurfaced in its ugliest form with the other crises cropping up on the heels of global economic crisis.

Most of the banks are in trouble because of widespread irregularities and corruption. Islami Bank Bangladesh Limited is only the tip of the iceberg. The IBBL disbursed a total loan of Tk 7245 crore reportedly to nine companies. Those nine companies are suspected to be belonging to one single company or the sister concerns of it. The loans were sanctioned reportedly by breaching all banking rules. The company that took the loans appears to be a ghost and obscure one.

On November 29 officials of Bangladesh Bank told The Business Post: “The IBBL should have taken at least Tk230 crore as collateral including Tk 110 crore as deposit from the company as the loan was risky. Such safeguard is not mandatory under the easy loan conditions.”

The Basic Bank loan scam is in everyone’s knowledge. A High Court bench on November 28 on a hearing of three bail petitions vented its anger and frustration over the Anti-Corruption Commission (ACC) as it had failed to press charges in any of the 56 cases filed over the bank’s loan scam in the last seven years. The anger was so seething that the HC went so far as to term the lethargic works of the ACC a farce. It said: “This is just like a drama. We are watching the drama. It is not acceptable.”

Also the state-owned banks are plagued with non-performing loans and corruption. Another very recent media report quoting a parliamentary sub-committee report said the state-run Sonali Bank’s defaulted loan had reached at an alarming point. What is more alarming is many of the borrowers now cannot even be traced and many of the loans were granted without any collateral.

The sub-committee formed by the Parliamentary Committee on Estimates to look into the matter made 14 recommendations. The recommendations include legal action, quick identification of willful defaulters and limiting the bank’s power of the board of directors to granting loans. If only the measures mentioned above can be implemented at full steam it could hopefully bring about a big change at the said bank.

We believe that after the instruction of the prime minister the same measures will be taken at all banks – bet it state-owned ones or private ones – to save the money people deposit in their accounts in good faith.

Banks are the last resort for people to deposit their money and protect it. The banking sector is the essential part of the economy of a country. It is a bank where trust is the first and main pillar. Once this trust is lost the economy will collapse. We hope and believe that the government will not, for sure, allow all these irregularities, loan scam and defaulted loans to ruin the sector. Let’s keep our fingers crossed.