Loan scams ate up Tk 92,261cr in 15 years: CPD
As much as Tk 92,261 crore have been siphoned out of the banking sector through 24 major loan scams since 2008, according to the Centre for Policy Dialogue -- in damning evidence of the extent of erosion of corporate governance in the sector.
"The amount is around 12.1 percent of this fiscal year's total budget and 1.8 percent of the country's GDP size -- it is huge and so is its impact," said CPD Executive Director Fahmida Khatun at a media briefing yesterday to share the think-tank's observation on the state of Bangladesh's economy in fiscal 2023-24.
The figure, which was arrived at by compiling media reports on bank scams between 2008 and 2023, includes the major loan scams such as the Hall-Mark Group's embezzlement of Tk 4,357 crore from Sonali Bank, siphoning out of Tk 4,500 crore from BASIC Bank and the recent embezzlement of Tk 2,320 crore from Islami Bank.
"Already, major banking indicators are deteriorating, she said, adding the banks are not making adequate contribution to the economy for their weak financial health.
Defaulted loans soared to more than Tk 156,040 crore from around Tk 22,000 crore in 2008, said Mustafizur Rahman, a distinguished fellow of the CPD.
However, the actual volume of bad loans would be much higher if loans in special mention accounts, loans with court injunctions and rescheduled loans were included, the CPD said.
The defaulted loans are still unchecked, threatening the health of the financial system, it said, adding it is a problem not only affecting the state-run banks but also the private banks.
Excess liquidity in the banking sector has declined from Tk 169,556 crore in October 2022 to Tk 158,432 crore in October 2023.
This fall in excess liquidity has been mainly driven by the liquidity crisis in five of the ten Islamic banks plagued by poor governance since the ownership changes of the banks, the CPD added.
Though there is no government data on capital flight, many foreign research organisations say that about $7-$8 billion is flying out of Bangladesh every year, and some of the embezzled funds are included in the capital flight, Rahman said.
"So, huge reforms are necessary in the banking sector."
And yet, in the amended Bank Company Act, the tenure of a director was increased by three more years to 12 years by going against experts' recommendation to bring it down to six years, he added.
"The banking sector is in the grip of crony capitalism. The crony capitalists have used banks as vehicles for reaching their goal of financial oligarchy," Khatun said.
The vested groups are using the regulators to frame policies and regulations that are beneficial to them, she said.
The regulatory bodies such as the Bangladesh Bank and the other finance-related regulatory bodies are captured by the vested groups.
"If things continue this way, the necessary reforms will not happen. Only a selfless and strong political leadership can venture into taking the difficult path of reforms."
Though the government is saying that the reforms will be taken after the election, questions remain about whether it would happen given that the election is not participatory.
A participatory election would have ensured the political intention needed for reforms of such scale, Khatun added.
Bangladesh's banking sector has consistently demonstrated vulnerability, primarily because of a lack of good governance and a dearth of reforms, according to the CPD.
"Its weaknesses have been consistently exposed through the high loan default rates and sub-par performance across various indicators. This inherent fragility presents significant risks to the overall economy. Regrettably, the government's commitments to safeguard the banking sector remain unmet."
Considering recurrent instances of fraudulent activities and irregularities, the actions implemented by the government have been insufficient, Khatun said in a presentation.
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