Protect the banking sector from rumour mongers

The country of Pakistan was divided into two parts- East Pakistan and West Pakistan. Later, East Pakistan became what is now Bangladesh in 1971 following a nine-month bloody war against the occupying West Pakistani forces. Bangladesh came into being through untiring efforts made by the common Bengalis who reeled under unjust rule for nearly a quarter century.

The reasons behind the struggle to get freedom Pakistani occupation were many; economic and financial freedom was one of demands behind fighting against the ruling classes of West Pakistan. Shortly after emerging as Bangladesh, Bangabandhu Sheikh Mujibur Rahman’s government was frustrated in view of the ailing financial sector. The economy was devastated because of the scorched earth policy adopted by the Pakistani forces. In the post-war period, Bangladesh’s foreign exchange reserve was $ 800 million. Father of the nation Bangabandhu Sheikh Mujibur Rahman began the race for rebuilding the war-ravaged economy. As part of his move, fragile banking industry was then brought under reform initiatives.

The newly independent Bangladesh felt the necessity of reforming and expanding the financial sector. The establishment of banking regulator was a timely demand then. In line with the demand, the central bank of Bangladesh, Bangladesh Bank, came into being through presidential order No. 127 of 1972. The central bank started its operation as the watchdog from December 16, 1971.

Ultimately, the banking sector in Bangladesh made its long journey with 6 (six) state-owned banks. After more than 50 years of Independence, the total numbers of state-owned, privately-owned and foreign banks are above 60. The banking sector has been brought into an admirable position over the years through a series of initiatives taken from time to time. A major reform initiative was taken in 1980 when some private sector lenders were allowed to start banking operation. Besides, two state-owned banks were turned into privately- owned banks under this reform programme.

It is relevant to note that Money, Banking and Credit Commission were constituted in the mid-1980s in a bid to take the banking sector ahead with well-functioning banking systems in place. As part of the reform move, a new system of loan classification and provisioning was introduced in 1989. After that, the World Bank’s Financial Sector Reform Project (FSRP) came as a blessing for reforms in the banking industry. FSRP expired its tenure in 1996. Then, Bangladesh government formed a Bank Reform Committee (BRC) where the risks-related affairs was given due importance among other issues.

Later an initiative came under the title of the Central Bank Strengthening Project (CBSP) in 2003. CBSP aimed to strengthen legal framework in the banks. The World Bank took a forward-looking project titled “The Enterprise Growth and Bank Modernization Project” in 2004 with a view to giving an exceptional structure in banking industry; mostly the project focused on private sector banks. Following privatization initiative taken in 1982, the privately-owned lenders began a positive start.

Gross Domestic Product (GDP) size in 1972 was $ 5.70 billion. According to Bangladesh Bureau of Statistics (BBS), GDP size stood at $ 465 billion in FY 2021-22 (at current price). Bangladesh was able to take its foreign exchange reserves to a lofty $ 48 billion. Unfortunately the trend is in decline now.

The banks play a vital role in bringing foreign currency in the form of USD. Mainly, export earnings and hard-earned dollar sent by the Bangladeshi expatriates enter into economy through banking channels. Foreign exchange reserve shows a country’s economic strength, no doubt which comes using banking network. In this respect, private sector banks put more contributions compared to state-owned commercial banks. During the coronavirus pandemic, the banking sector with its dedicated staff served the public braving serious illness and even death. With a view to keeping the virus-hit economy afloat, the banking sector never shut its doors. The banks took responsibility of disbursing the lion’s share of the stimulus packages announced during the coronavirus pandemic.

Despite being aware of the banks’ contribution to the development of the economy, some people are carrying out their evil designs. Some false news, especially in the social media, related to banking affairs prompted many depositors to take the hasty decision of withdrawing deposited money from bank vaults. Definitely, this type of fake news is going against the interest of the state. The recently disseminated fake news, that are widely being observed to move on social media apart from newspapers, turns the banking sector into confusing state. It has been reported that the depositors now prefer to keep their money in homes instead of banks vault.

Is the money kept at home safe? Ultimately, the money kept at homes may go to the hands of burglars. Besides, if the banks do not get the money from the public, the banks can never take decision of lending for greater interest of economy. In recent years, significant volume of money is moving out of the banking system resulting in halting economic growth. A vernacular business daily reported that for the last five years out of banking system, cash money movement increased by 70 per cent indicating that the economy is set to face difficulties in going forward.

According to Bangladesh Bank sources, in FY 2019-20, a total of cash Taka 1,92,114 crore was outside the banking system, The amount rose to Taka was 2,39,998 crore in current fiscal 2022-23. As a result of money remaining out of the banking system, size of the black economy will be larger.

`Hundi’- an illegal cross border financial transaction- activities will be intensified more than before. A series of news stories with unauthentic data recently came in view.

A written protest by a shariah-based bank drew my attention. The protest reads out that how news is produced before public converting the amount in US dollar resulting in displaying wrong message before the nation. If the amount was calculated in BDT, the figure was marginal.

When I was writing this article, I made a phone call to the Professor of Bangladesh Institute of Bank Management (BIBM) Dr. Shah Md Ahsan Habib for taking his observation regarding banking rumours. “Bangladesh is a bank-based economy and any rumour erodes people trust on banking” Md Ahsan Habib said, adding that the rumour must be quashed for the sake of country’s economy. Recently the IMF visiting delegation only expressed concern over the rise in non-performing loans.

Decreasing or increasing of NPL is natural in the banking arena. The government has taken steps in addressing the problems in light of IMF advice. Bangladesh aims to become a developed country by 2041 through its perspective Plan (2021-2041). A bank-based economy like Bangladesh has to work to achieve the goals. Let us keep ourselves from seeing or hearing any banking rumour to take the country ahead economically.

The writer is economic affairs analyst. He can be contacted at [email protected]