The most debated topic right now outside politics is probably the banks laden with around Tk 100,000 crore in nonperforming loans and at least Tk 22,000 crore taken out through scams in recent years. This is a roll back on the improvement achieved in the 1990s through reform programmes.
And yesterday, the country's top economists and bankers called on the politicians to pledge not to further interfere in banks, the heart of the economy, if Bangladesh must move on as a middle-income country.
They observed that the banking sector was now passing through “the worst time ever” that needs to be corrected with stern decisions.
“Breaching of rules and regulations has been pulling down the banks continuously,” Wahiduddin Mahmud, former adviser to a caretaker government and an eminent economist, said yesterday.
“Please leave the banks alone…. When the country's economy grew faster in the last decade, the banking sector, the heart of the economy, is the only sector which sees decline in terms of breaching rules instead of improvement,” he said.
According to former deputy governor of the Bangladesh Bank Khondokar Ibrahim Khaled, banks are in their “worst state” now.
“The central bank is unable to look after the interest of the depositors. We need to raise voice against the political interference in banks,” he told a dialogue organised by the Centre for Policy Dialogue at a city hotel.
Zahid Hussain, lead economist of the World Bank's Dhaka office, said there had been a nexus of regulators, bankers and big borrowers.
“The risk of our inaction is very high because of the bleeding happening in the banking sector,” he warned.
Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue, called on political parties to pledge in their manifestos not to interfere in the banking sector and carry out reforms to bring the banks from their brink.
He also announced that the CPD would form a citizen's commission on the banking sector after the election to find out the reasons behind the current state of the banks and suggest remedies.
The experts came together at a dialogue on “What Do We Do with the Banking Sector of Bangladesh”.
At the beginning, Fahmida Khatun, executive director of the CPD, gave a presentation on how the banks slid backwards in the last few years in terms of capital adequacy, nonperforming loans and asset quality.
She showed that the Tk 22,502 crore lost through scams could foot 78 percent of the cost of the Padma Multipurpose Bridge or 20 percent of the work of the Rooppur Nuclear Power Plant's main project.
Depositors lost their confidence in the banking sector, with many heard asking these days from which bank they will get back their deposits safely, said Wahiduddin Mahmud.
Such a situation has been created as politically influential people take loans violating banking norms and become defaulters, and then they get away with it, he added.
After the 1990s, some private banks saw improvements in line with international standards. Banking rules were strict then, but now the sector is moving backward because of lax rules, he said.
Under the law, loan defaulters cannot contest elections, but some influential candidates are getting exemptions, he said.
The deterioration is continuous and the performance indicators of the banks are degrading every year, said Ibrahim Khaled.
Bank owners arrange only 7 to 9 percent working capital and more than 90 percent of it come from depositors, who have no representatives in the bank board to protect their interest. The central bank is responsible for protecting depositors' interest, but it has apparently failed to do that, said the former deputy governor of the BB.
According to international practice, governors never sit with bank owners to discuss central bank's regulations. But the BB governor attended a meeting with the bank owners at a hotel recently and made a decision about slashing the Cash Reserve Ratio, which is a regulatory tool to control the money market, he added.
On the other hand, the BB had taken an initiative to implement the Bank Company Act to make sure that not more than two members of a family are on bank boards. But the government changed the law to favour bank owners, allowing four members from a single family in the board, Ibrahim Khaled said.
He recommended doing a survey to get the real picture of the sector after formation of a new parliament after the election.
And the governor must be appointed by the president and the BB has to be completely free from finance ministry's influence, he said.
Former BB governor Salehuddin Ahmed said although the banking sector did not collapse, it has developed cracks for a lack of good governance.
The main problem of the sector is the perverse incentives given to the big borrowers, he said, adding that regulatory failures must be addressed to come out of such practice.
Professional economic decisions require political resolves, the noted banker observed.
Zahid Hussain warned that continued support by the BB to “un-willful” defaulters could create some willful defaulters.
“We are on the wrong path and dependency on the wrong path is increasing,” he said, asking the authorities to correct those.
He recommended establishing a uniform regulatory framework and ensuring autonomy of the central bank. “Political will is needed to change the situation.”
The Farmers Bank collapsed because of the interference of a politically influential director in the board, said Md Ehsan Khasru, managing director of the troubled bank.
One director of the bank was more powerful than the central bank, he said, in an indirect reference to Awami League lawmaker Muhiuddin Khan Alamgir.
In November last year, Alamgir, who was chairman of the bank, was forced to resign.
“I don't know whether the director was personally behind the anomalies or if he was encouraged by others around him,” Ehsan said.
Leadership did not grow in the banking sector due to the meddling of the board members, he added.