Signs of improvement but mess yet to clear

Governance in the financial sector is showing signs of improvement as the government has taken a number of initiatives over the last three years to pull the sector out of a major crisis.

However, big challenges still remain in ensuring discipline in the banking and non-banking sectors vital for the country's development.  

The state-run commercial banks fell prey to political influence after the Awami League government assuming office in 2009 appointed its chosen people as directors of boards of the banks.

On several occasions, Bangladesh Bank wrote to the finance ministry regarding the appointments on political consideration, but the practice continued till the end of 2013.

Moreover, the government's lax handling of the state-run lenders paved the way for scams such as Hallmark loan scams at Sonali Bank and the fall of BASIC Bank from grace.

The stockmarket also suffered its worst crisis in 2010 mainly due to abnormal rise in values of shares and misuse of rules and regulations. The banks had been given a free hand to invest in the market, leading to the boom and bust.

But after assuming office for the second consecutive term through the January 2014 polls, the AL-led government took steps to prevent the crisis in the financial sector from worsening.

Since then, it has largely stopped appointing directors of the state-run banks on political consideration. Most of its picks have been former bankers or civil servants, economists and government representatives, including bureaucrats from the finance and banking divisions.

For example, Zaid Bakht, a former research director at Bangladesh Institute of Development Studies, was appointed chairman of the Agrani Bank.

Well-known IT entrepreneurs, women entrepreneurs, retired United Nations executives, former deputy managing directors of private banks and chartered accountants have been appointed directors of boards of the state-run banks. 

In May 2014, the government sacked BASIC Bank Managing Director Kazi Faqurul Islam for presiding over a period of serious irregularities at the state-run scheduled bank while the then chairman Abdul Hye Bacchu, largely blamed for the bank's current situation, stepped down.

The government reconstituted the board in July that year. Alauddin A Majid, who led the bank as its chief executive when it was a healthy lender, was appointed its new chairman.

But the bank is still in trouble: it has capital shortfall and a large number of bad loans. And the government has to inject a huge amount of money from the national coffer to keep it alive.

Alauddin said the bank has traced most of the borrowers whose whereabouts were said to be unknown. Loans of Tk 3,800 crore were rescheduled till November last year, and the bank has recovered Tk 871 crore.

“The clients' confidence in the bank is returning. Good clients are coming back.”

Sonali Bank and the Anti-Corruption Commission have filed several cases against fraudsters, including those related to the Hallmark scam, for siphoning Tk 4,000 crore from Sonali Bank.

Sonali Bank officials said the bank has narrowed its liability by Tk 500 crore through various measures, including seizure of export proceeds of borrowers.

Some loans have been written off. But the chances of getting back the embezzled money are very slim, they said.

Pradip Kumar Dutta, who retired as managing director of Sonali Bank in June last year, said a new policy has been put in place at banks for loan classification.

Besides, banks have stepped up compliance on anti-money laundering and credit approval.   

The central bank has also beefed up its monitoring, he said.

However, large loan restructurings by the banks have so far failed to produce the intended results.

In the current tenure of the AL government, the central bank has allowed restructuring of loans of Tk 20,000 crore for long terms. But the waiver may not be paying well, as bankers said many beneficiaries don't repay instalment in time. They repay it at later dates to retain the benefit.   

The banking sector, which dominates the financial sector in Bangladesh, is still plagued by bad loans, known as non-performing loans.

Till June last year, default loans amounted to Tk 63,365 crore, which was 10.06 percent of the total outstanding loans, according to the latest BB data.

If the written-off and rescheduled loans are taken into account, the sum would easily cross the Tk 100,000 crore mark.

The $81 million cyber heist in the BB account at the Federal Reserve Bank of New York in February last year dimmed the central bank's achievements.

It is not yet clear who -- from the BB or outside the country -- committed the cyber crime, but it has become evident that negligence of the BB played a role.

Since the stockmarket crash in fiscal 2010-11, the government has taken several steps, but equity markets still have not been able to lure back retail investors at previous levels.

Both Bangladesh Securities and Exchange Commission and the BB have tightened rules so banks cannot go for excessive lending for investing in the stockmarket.

Overall, the macroeconomic stability has continued over the last three years as it did in the previous term of the AL-led government.

The economy grew above 7 percent after being trapped in 6-plus percent for a decade. Foreign currency reserves are setting new records every year, crossing $32 billion in December last year. Inflation has dropped below the government's target.

However, private investment has not gone up. As a result, job creation for more than 20 lakh people joining the workforce every year has become a challenge.

The falling remittance is also a concern, as the poor and the low-income groups rely on the money sent by their relatives living abroad.