Home ›› 25 Aug 2022 ›› Front
The Bangladesh Bank is considering withdrawing its observers from weak banks in phases after completion of their current tenures, as the banking regulator is signing new deals with the problem banks to help improve their financial health.
Speaking with The Business Post requesting anonymity, a senior official of the central bank said, “The tenure of observers in four banks – Bangladesh Krishi Bank, Bangladesh Development Bank, BASIC Bank, and National Bank – have already ended, and they will not be reinstated.
“Despite appointing observers to those banks, their financial health did not improve, rather in some cases, they deteriorated.”
As part of the fresh measures to improve the weak banks’ financial health, the central bank recently signed memoranda of understanding (MoU) with National Bank, Padma Bank, Bangladesh Commerce Bank, and National Bank of Pakistan.
Similar MoUs will be signed with six other weak banks as well, central bank officials say. The regulator currently has observers in eight banks – Sonali Bank, Janata Bank, Rupali Bank, Agrani Bank, Padma Bank, ICB Islamic Bank, Bangladesh Commerce Bank and One Bank.
The Bangladesh Bank also plans to appoint coordinators in ten banks identified as weak, and such officials will hold more power than observers, said a central bank official involved in the process.
A Bangladesh Bank observer has the power to attend board meetings of the bank they have been appointed to, and they can also submit a note of dissent.
Responding to query, Bangladesh Bank Executive Director and spokesperson Md Serajul Islam said, “The issue of withdrawing the observers from banks is being discussed internally. The regulator is yet to finalise any decision in this regard.”
The practice of appointing observers in weak banks started in 1994, when the regulator enlisted Oriental Bank as a troubled lender and appointed an observer to address the worsening corporate governance at the bank, which was later renamed as ICB Islamic Bank.
Despite the appointment of an observer, the financial health of the weak banks remains worrisome owing to insurmountable loan irregularities and poor corporate governance. Some even took a turn for the worse after the observers came on board.
At the end of June of this year, the defaulted loans of eight banks that have the central bank observers, stood at Tk 54,819.87 crore, which was 43.76 percent of the total defaulted loans in the country’s banking sector.
“The weak lenders’ financial health failed to improve as some observers are suborned by the banks. The observers are not playing their roles actively,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
