In a reversal of its stance, the Bangladesh Bank (BB) on August 27 decided to allow Beximco Ltd to reschedule its loan of Tk 430.05 crore, thus in principle approving the rescheduling of restructured loans. Earlier in 2015, under a special package granted to 11 companies, including Beximco, Tk 15,180 crore of loans were restructured. These companies were given extended time to repay their loan, but for Beximco, the latest move extends that period from 6 years to 12 years. This precedence, according to sources from within the central bank, paves the way for the 10 other businesses to now seek similar loan rescheduling benefits.
Earlier in the week, the finance minister, while talking to reporters after a meeting with all the chairmen of the state-run banks, had said that, “If anyone claims the amount of default loans is increasing, I will not accept it.” But according to BB sources, default loan had increased by Tk 18,500 crore in the last six months.
Nevertheless, what must be pointed out first is that it is the BB that has been flouting its own rule and thereby giving out the wrong signals and jeopardising financial discipline.
One may recall that in May 2018, the central bank broke its own rules of business to allow four state-owned banks and one government financial institution to inject Tk 715 crore into the Farmers Bank, after its investigations into the bank found its top brass—including its “former chairman and ex-chairman of the executive committee”—to be complicit in the financial meltdown of the bank (Bangladesh Bank flouts own rules, May 11, 2018, The Daily Star). Back then, the central bank violated Article 14 of its Act to allow the five institutions to have more than 10 percent share of the Farmers Bank.
Similarly, the BB had allowed “AnonTex, which took more than Tk 5,500 crore from Janata Bank through serious irregularities, controversial permission to take more loans from other state-owned banks” and “reschedule its loans”. This approval came “even though Janata Bank’s board did not consent to the company’s proposal for rescheduling its loans,” and was thus “against banking norms” (AnonTex riding on BB favours, October 28, 2018, The Daily Star).
Then, in April this year, the BB had similarly decided to ignore its own rules regarding defaulted loan classification by extending the time for treating overdue loans as doubtful and bad, amending its earlier rules issued in 2012.
These are but only three examples, out of many, of the central bank ignoring its own rules.
When the regulator becomes subject to manipulation then the legal edifice of the financial sector is compromised. That is a dangerous position to be in—as it amounts to playing with public money.
The great irony is that those who set the various rules and regulations concerning the financial sector are themselves disobeying them on a regular basis. It demonstrates a sort of disregardful attitude, and indicates that the governing and regulatory structures have been captured by certain influential quarters, for whom rules can be set and bent whenever they please.
In other words, certain special interest groups are now above the law. So much so that the law must now abide to their desires and be changed to suit their purposes—not the other way around—with the regulators enforcing the law precisely in accordance with their interests.
We have witnessed similar things happening in other places with devastating consequences. And the eventual outcome, when decisions are so strongly dependent on the whims of puppeteers’ workings from the shadows, has been disastrous everywhere.
It’s no wonder then that Khondkar Ibrahim Khaled, a former deputy governor of the central bank, believes “discipline in the banks” is on the verge of “totally” collapsing. Given what we have witnessed happening in the banks in recent years, one can easily argue that it already has. And that argument is backed strongly by the data, regardless of whether the finance minister is willing to accept it or not.
For example, despite the fact that default loans stopped rising at record speed, in the second quarter of FY2018-19, default loan increased by Tk 1,551 crore—although less compared to a record Tk 16,692 crore in the previous quarter—meaning that the finance minister failed to keep his promise of not allowing default loans to increase by a single taka. But more importantly, at the end of June, the banking sector’s total default loans stood at Tk 112,425 crore, despite repeated restructuring and rescheduling—accounting manipulation intended to lower the amount of default loan that is shown on paper.
And this is quite obvious from the fact that loan write-offs nearly quadrupled in the first quarter of the year after the central bank “eased its rules”. Whereas between January and March of last year, Tk 141.26 crore was written off, a staggering Tk 557.30 crore was written off during the same period this year. Given this reality, one may ask how defaulted loans are actually being brought down—are we cooking the books?
Lastly, the finance minister, during the same talk, also said that “there will be no more refinancing to the banks and that’s gone. This is now the story of the past…this is the final decision.” As data reveals, the banking sector has not seen any real improvements in recent times, despite accounting manipulation portraying it as such on paper. But we hope the finance minister sticks to his word and does not allow further bailouts, and instead, makes these banks “earn their money”, as he further said.
Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is: @EreshOmarJamal.