Give full autonomy to central bank

From right, Mustafizur Rahman, executive director of the Centre for Policy Dialogue (CPD); Debapriya Bhattacharya, CPD distinguished fellow; Salehuddin Ahmed, former governor of Bangladesh Bank; Rehman Sobhan, CPD chairman; SK Sur Chowdhury, BB deputy governor; Mohammed Nurul Amin, chairman of the Association of Bankers, Bangladesh; and Fahmida Khatun, head of research at the CPD, attend a discussion on "State of governance in the banking sector: dealing with the recent shocks", organised by the CPD at BRAC Centre Inn in Dhaka yesterday. Photo: STAR

Lawmakers and experts yesterday called for the closing of the banking division of the finance ministry and justified giving full autonomy to the Bangladesh Bank to ensure good governance in the financial sector.
At present, both BB and the banking division possess the authority, though partially, to control the operation of state-run banks. And that, according to the speakers, caused a chaotic situation in which each party blames the other for any mismanagement in the sector.
This was what had happened in the case of the Tk 3,606 crore loan scam involving Sonali Bank, the Hall-Mark Group and five other companies, they said at a discussion organised by the Centre for Policy Dialogue (CPD) on governance of the banking centre at Brac Centre Inn in the capital.
The central bank should be given full authority, said lawmaker Tajul Islam, chief of a sub-committee of the parliamentary body on the finance ministry.
An independent lawmaker, Fazlul Haq Azim, echoed his view.
"If the government thinks the Bangladesh Bank lacks anything, we have to identify them. We should not keep any scope for confrontational activities in the financial sector," said Tajul.
On the loan scam, he suggested finding out the beneficiaries of the loans swindled out of Sonali Bank's Ruposhi Bangla branch against forged documents and sought their punishment.
He and other participants at the programme blamed the scam on the bank's failure in its internal control mechanism, BB's lack of supervision, the finance ministry's control over state banks and appointment of directors to the bank's board on political considerations.
Bangladesh Bank Deputy Governor SK Sur Chowdhury took issue with the allegation of BB's weak supervision and monitoring.
BB conducts an audit annually. It inspects 100 branches of Sonali Bank out of its 1200 branches. As money transactions in the Ruposhi Bangla branch were very few in the past, BB had not inspected it, the BB official said.
"Miscreants have chosen the branch very tactfully," he said, adding the Ruposhi Bangla branch was a quiet branch and that its function had been limited to dealing with depositors.
CPD Chairman Rehman Sobhan and Head of Research Fahmida Khatun in a keynote paper said the amount disbursed by the Sonali Bank branch in loans was 320 percent of the bank's paid-up capital.
Rehman Sobhan said the default loan culture that had begun with Shilpa Rin Sangstha and Shilpa Bank has gone on for the last three decades.
If all the default loans and those written off were added up, he said, "The figures would really defy our imagination. So, what we see is just a cumulative process of lack of financial governance."
Salehuddin Ahmed, former governor of BB, said, "When I was leaving [the bank], I told policymakers, 'Please don't constitute the banking division'". Monetary policy cannot be properly implemented if the central bank does not enjoy full autonomy.
Citing a recurrence of financial misdeeds, former commerce minister Amir Khasru Mahmud Chowdhury said, "Those who have created the banking division should be held responsible first."
A money-making machine has been set up at the finance ministry by curbing the authority of the central bank, he said, and this banking division was deciding who would be appointed to the boards of state-run banks and other banking activities.
"We are just systematically destroying all the [financial] institutions. Even after repeated disaster, nothing is being done to protect them."
Nurul Amin, chairman of the Association of Bankers, Bangladesh, blamed the Sonali Bank board for the loan scam.
He suggested setting up a body to detect financial fraud.
CPD distinguished fellow Debapriya Bhattacharya demanded that the beneficiaries of the loan scam be found out.
"It is very important for us to understand whether it is a structural failure in the banking sector," he noted.