Reformation of banking sector necessary to restore discipline

Mahfuja Mukul: There was already extreme chaos in the country’s banking sector. Massive amount of defaulted loans, money laundering, lack of good governance, poor financial health of some banks, liquidity crisis in Islamic banks and weak regulations of Bangladesh Bank have weakened the banking sector day by day. In this situation, the unstable environment surrounding the student movement that happened in the country in the last one month, the fall of the government and the change of the government, there is a struggle to change ownership in several banks.
Apart from this, the crisis in the banking sector has deepened with the resignation of the governor, deputy governor and other top officials of the central bank. Economists believe that it is necessary to reform the banking sector quickly in order to turn around the banking sector and speed up the financial management.
During the outgoing Sheikh Hasina government’s budget speech for the fiscal year 2019-20, the then finance minister indicated that the government is going to bring several reforms to bring order in the banking sector. He used to mention such reforms during the next four budget announcements. However, only a couple of initiatives saw the face of implementation. As a result, instead of restoring order, the banking sector became more chaotic. The Government and the Central Bank have amended the Bank Companies Act to address issues related to good governance in the banking sector. On the other hand, Bangladesh Bank has announced a roadmap. However, these initiatives are insignificant in solving the current problems of the banking sector.
Currently, the banking sector is struggling with high non-performing loans, poor financial health of some banks, liquidity crisis of several Islamic banks and weak regulatory framework of Bangladesh Bank. In 2009, the amount of defaulted loans was Tk 22 thousand crores. Which now stands at Tk 1 lakh 85 thousand crores. According to the data of the Central Bank, the total amount of problem loans, including written off loans and rescheduled loans, stands at Tk 3 lakh 77 thousand 922 crores. Behind this was willful default. They were supported by the government. Banks have been given to party people. Policy has been changed at will.
Fahmida Khatun, Executive Director of Center for Policy Dialogue (CPD) said in the light of time on the reform of the banking sector, an independent banking commission is needed to ensure good governance in the banking sector. An inclusive, transparent, impartial and independent commission should be established to bring transparency in the banking sector.
He also said that there was a huge lack of good governance and accountability in the economy. Past governments have not done institutional reforms. The new government will have to deal with them. Then order can be brought back to the economy. So, all in all, giving people relief from inflation, restoring order to the economy, ensuring good governance and accountability and institutional reforms should be the main economic priorities of the new government.
The new governor of Bangladesh Bank Ahsan H. Mansoorsaid, the new government is under a lot of pressure, they have to reform in many sectors. Likewise, more importance should be given to the reform of the banking sector. How the government wants to reduce inflation, whether it will commission or task force to solve the problems of the banking sector, or whether it will be done by Bangladesh Bank, should be told. Apart from the economy, the position of the government should be announced on basic issues including empowerment of local government, government services, institutional reforms, political reforms.
Recent chaos has exacerbated the crisis: Meanwhile, the country’s banking sector has been in major chaos since the fall of the government. At least three private banks as well as state-owned banks are also in trouble. In the absence of top officials including the governor, order did not return to Bangladesh Bank itself. The people concerned think that the lack of guardians has created so much instability in the banking sector.
There has been chaos in several private banks including Islami Bank Bangladesh PLC, Social Islami Bank, United Commercial Bank (UCB). Among them, Islami Bank’s Managing Director (MD) Muhammad Munirul Mawla has been prevented from office work. Two deputy managing directors (DMDs) of Social Islami Bank have been forced to resign. Protests and human chain took place in front of United Commercial Bank. There have been demands to change the board of directors of some other private banks including National Bank, South East Bank, Al-Arafah Islami Bank or to include new directors.
Economists and bank executives say that the condition of the country’s banking sector is already fragile due to unlimited irregularities and corruption. Due to loss of money in the name of loans, the foundations of most of the banks have been completely weakened. Now is the time to pull the banking sector. But if the chaos that is emerging is not controlled quickly, the situation will turn dire. Many banks in the country will go bankrupt if panicked customers start withdrawing their deposits. Apart from bringing law and order under control, the main responsibility of the new government will be to restore order in the banking sector.
The officials who participated in the protest claimed that after the change of ownership in 2016, many honest and efficient officials of Islami Bank were fired. On the contrary, the associates of the bank’s money loss got promoted quickly. Now those corrupt officials will not be allowed to work in the bank. Again, the officers and employees who have been appointed since 2016 will not be allowed to enter the bank.
How much is the roadmap for reforms in the banking sector: The central bank announced a roadmap to restore good governance in the country’s banking sector. But that roadmap has so far been limited to rough announcements. Although as part of the reforms the financial condition of the weak banks did not improve, efforts were made to merge them with the better positioned banks; But it is believed that the change of government may stop it.
During the tenure of the outgoing government, action plans were taken on 17 issues in the roadmap of Bangladesh Bank.
Among these, five important issues are – reducing bad loans, stopping bad loans and frauds, arranging for appointment of competent directors, appointment of competent independent directors and merger of weak banks with strong banks, known as mergers. However, the implementation of these too was not seen that way. Professor Dr. Economists believe that the interim government led by Muhammad Yunus should take steps to implement these initiatives to reform the banking sector, and the soccer team should take some new effective measures to restore the momentum of the back sector.