Central bank gives in to political pressure

In the face of pressure from the government high-ups, the Bangladesh Bank is going to approve about a dozen new private banks against its will.
The central bank has sent a list of 16 proposed banks to the Prime Minister's Office and finance ministry early this week for a "green signal," officials concerned have said.
On getting the signal, the BB may give the go ahead to seven to nine banks. The number might be decided at the BB's board meeting on March 15.
When the issue came up last year, the central bank, the sole authority to approve new banks, was against the move. It said there was no need for more banks with 47 public, private and foreign banks already in operation in the country.
The BB eventually gave in to "political pressure" and sought applications for new banks in September, receiving 37 applications till November 30 last year. The BB board then unofficially decided not to approve more than three banks, the officials added.
With time came more pressure, forcing the BB to make a big list.
Applicants for the new banks include former military ruler and Jatiya Party chief HM Ershad and Awami League lawmaker and Prime Minister Sheikh Hasina's nephew Fazle Noor Taposh.
As per rules, the BB holds the ultimate power to approve new banks. But in reality, it is now allowing banks by those enjoying blessings of the government high-ups, a number of officials told The Daily Star yesterday, requesting anonymity.
The central bank had faced tremendous pressure from the government high-ups to quickly approve those banks even before it could properly scrutinise the applications, they added.
Normally, at least three committees of the central bank scrutinise the applications before giving the go ahead and the process takes at least six months.
But in this case, the BB is set to place the applications in its board meeting on March 15, only three months into the submission. However, a BB official claimed that the applications would go to the table on completion of all the formalities.
In addition, the BB board on the day is likely to approve three banks by Non-resident Bangladeshis. Earlier the authorities had decided to allow one such bank.
Two of the three applicants could not produce their income tax certificates, but the matter was overlooked, a finance ministry official said.
Since the 1980s, each of the three major political parties -- AL, BNP and JP -- during its rule allowed setting up of new banks. The AL during its previous term approved 13 new banks.
The International Monetary Fund and leading economists in the country oppose setting up of new banks at the moment. They argue that more banks in the already saturated market will set off an ill competition and worsen the current liquidity crisis.
But the government says it still sees scopes for more banks given the size of the economy and growth in the export-import business.