Sunday | 12 January 2025 | Reg No- 06
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Sunday | 12 January 2025 | Epaper

Banking sector reforms should focus on curbing political influence 

Published : Friday, 11 October, 2024 at 12:00 AM  Count : 281
Motaher Hossain
Bangladesh is currently grappling with a profound economic crisis that has severely impacted industry, employment and investment flows. As a result, unemployment has surged, while consumer goods prices have skyrocketed. This situation has been exacerbated by mismanagement in the banking sector, widespread loan fraud, a dollar crisis, dwindling foreign exchange reserves, remittance deficits, currency smuggling disguised as product imports, and a volatile commodity market.

The burden of inflation has fallen heavily on the common people, particularly the lower and lower-middle classes. A handful of top businessmen, often operating under the shadow of the ousted Awami government, dominate the import and local production of essential goods, leading to prices that are beyond the reach of many. The public and private banking sectors have become chaotic and disorganized, serving personal and political interests rather than the needs of the economy. Significant amounts of public money have been misappropriated in these institutions.

Recent reports from Bangladesh Bank have raised alarms about the precarious condition of the banking system. In response, a Banking Sector Reform Commission has been established under the guidance of Nobel laureate Dr. Muhammad Yunus, the chief advisor of the interim government formed in the wake of the student movement. This commission is tasked with publishing a white paper detailing the theft, loan fraud, corruption, and irregularities that have plagued the banking sector over the past 16 years.

Bangladesh Bank has established a task force to reform the banking sector, comprising six experienced professionals from the financial industry. Central Bank Governor Ahsan H. Mansoor will serve as the coordinator of this task force. In addition to implementing various reform measures, the task force is charged with publishing a comprehensive white paper.

The members of the task force include Lutfe Siddiqui, Chief Adviser's Special Envoy on International Affairs, Muhammad A. (Rumi) Ali, former Deputy Governor of Bangladesh Bank, Mehriar M. Hasan, Chairman of BRAC Bank, Zahid Hossain, former Chief Economist at the World Bank Dhaka Office, M. Zubaydur Rahman, Vice Chancellor of ZNRF University of Management Sciences, Sabbir Ahmed, partner at the accounting firm Huda Vasi Chowdhury. This initiative was announced in a recent notification from Bangladesh Bank and aims to address critical issues within the banking sector.

The task force will primarily assess the current financial situation of the banking sector, focusing on identifying bad assets and major risks to ensure financial stability. Key activities will include reviewing the financial indices of weak banks, evaluating the actual condition of loans, assessing security deposit deficiencies, examining liquidity situations, determining net capital, and evaluating the real value of assets. Additionally, the task force will work on separating bad assets from their respective banks.

According to Bangladesh Bank, the task force will propose enhancements to regulatory systems aimed at limiting political and corporate influence in bank decision-making. It will also recommend reforms in bank ownership and governance to strengthen risk management and improve crisis resilience. The task force plans to implement various policy measures to assist struggling banks and develop a comprehensive framework for their recovery. Furthermore, it will advocate for the formulation, reform, and modernization of key financial laws, including the Bank Company Act and the Bangladesh Bank Order.

The World Bank and the Asian Development Bank (ADB) are providing financial support for these efforts, which will also be allocated for the modernization and capacity building of Bangladesh Bank. Additionally, the International Monetary Fund (IMF) has pledged its support.

Initially, Bangladesh Bank began negotiations with the World Bank for a loan of $400 million, with ongoing discussions aimed at increasing this amount to $450 million. Meanwhile, the ADB has committed to providing $1.3 billion to facilitate the reform of the banking sector.

Of the 54 commercial banks assessed, 12 are in critical condition, with nine of them categorized in the 'red zone.' Bangladesh Bank has classified banks into three efficiency zones: red, yellow, and green. Sixteen banks in the green zone are performing well, while the yellow zone comprises a mix of strong and weak institutions. A total of 29 banks fall into the red and yellow zones, indicating they are in poor health. This group includes two state-owned commercial banks, 19 private commercial banks, and eight Shariah-compliant Islamic banks, all of which are considered to be in a fragile state.

A recent study by the Center for Policy Dialogue (CPD) highlights alarming issues within Bangladesh's banking sector, reporting that approximately 93,000 crore Taka have been misappropriated by fraudulent actors over the past decade. The CPD claims that Bangladesh Bank has operated in the interests of specific individuals and industrial groups, failing to enforce regulations and thereby enabling 24 major scams that have collectively siphoned off 92,261 crore taka from the banking system.

During a recent press conference titled "Bringing Order to the Banking Sector: What Should Be Done Soon," the CPD called for the establishment of an independent bank reform commission to swiftly address these issues and investigate fraud. The research paper presented at the conference detailed the irregularities and mismanagement that have characterized the financial sector during the 15 years of Sheikh Hasina's administration.

The CPD has reported that seven banks are currently controlled by the dominant Chittagong-based S Alam group, which has appropriated approximately 50,000 crore Taka from these institutions. The takeover of these banks was described as occurring "like a thief in the night," and since then, they have faced bankruptcy. However, the interim government has already initiated significant changes in the management and operations of these banks.

As of last February, there were 72,500 cases in financial courts, involving a total of 178,277 crore Taka. A thorough examination of financial scams from 2008 to 2023 is essential, with expectations that individuals involved in at least 24 significant scams should be prosecuted. 

The writer is a Journalist, General Secretary-Bangladesh Climate Change Journalists Forum



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