The appalling state of the banking sector

Despite repeated assurances by the finance minister himself that special measures would be taken to combat rampant corruption and mismanagement in banks, we are yet to see any concrete steps. The CPD's recent report on the banking sector put the cost of scams in 14 banks in the past decade at a massive Tk 22,502 crore. And as of September, the sector's nonperforming loans have reached nearly Tk 1 lakh crore.

The planning minister on Sunday also admitted that the problems in the financial sector are rooted in poor governance—something that experts have said time and again, only to have their warnings fall on deaf ears. While we appreciate the fact that the minister has acknowledged that the sector is in need of major reform and has given assurances that the ruling party would take appropriate measures if voted to power in the upcoming elections, we wonder why no substantive action has been taken by the government in the last 10 years to bring discipline to the sector. What we saw instead were counterproductive measures such as increase in the tenure of board members of private banks.

The astronomical rise in NPLs didn't happen overnight. This is the result of the government overlooking the malpractices taking place in the sector such as nonstop loan rescheduling, aggressive lending practices without proper scrutiny of loanees' profiles, over- and under-invoicing, capital fight, etc. Instead of taking action against loan defaulters and bank authorities, hardworking taxpayers' money was injected into state-owned banks and even the supposedly independent central bank bowed to pressure to issue licences to new banks.               

The state the banking sector is in is a real threat to the wellbeing of our economy and it should be recognised as such by policymakers. Immediate steps that need to be taken include forming an independent commission to oversee banks, de-politicising the sector, giving the central bank full independence, taking action against major loan defaulters and prioritising loan recovery.