After 2017…what defines our banking sector?

As the new year begins without us getting any closer to seeing an end to corruption, irregularities and mismanagement in the banking sector amidst an embarrassing lack of proper oversight, high-level bank employees continue to drop like flies. The latest among them were the Managing Directors of The Farmers Bank, NRB Commercial Bank and Meghna Bank, AB Bank's Chairman, Vice-chairman and Director, seven Directors of Social Islami Bank, and too many others to bother listing.

And while some “clearly-not-big-enough banksters” (those who have been sacked) are sacrificed by the wolf (those who are too big to be sacked, hence does the sacking) to quieten the sheep (you and me), our Finance Minister has had a real revelation. He said... wait for it... that a party was borrowing heavily from the market and buying banks to benefit itself!

How come none of us figured that out over the last n-number of years and not constantly warned of these kinds of danger? Oh, wait...we did... and we did. So how come the warnings were ignored? Do we wait another eternity to find out?

On December 12, the Finance Minister also told journalists that “there is no cause for concern” in regards to the decision to allow three new banks to operate, although that is in complete refutation of what experts have said and contradicts the fact that “the performance of the nine new banks” allowed to operate “since 2013 has not been any good.”

Our Finance Minister is almost reminiscent of Einstein when he said, “Insanity is doing the same thing over and over again and expecting different results.” But, then again, experts also say that it is a quote often misattributed to Einstein, so I guess he could be only reminding me of insanity—not Einstein.

Speaking of insanity, total bad loans in the banking sector increased by 23 percent towards the end of September to more than BDT 80,307 crore from BDT 65,731 crore only 12 months ago—with the regulators pretending everything is lovely and without depositors tearing “their” (“whose”? *wink*) hair out. But not to worry, Bangladesh Bank (BB) Deputy Governor Shitangshu Kumar Sur Chowdhury said that the central bank had “strengthened monitoring on other banks and have directed them to make sure there are no new default loans.”

Which begs these questions: first, why did the BB need to strengthen its monitoring; second, why was it lax before; and third and most importantly, why didn't the BB just “direct” them all these years if that was the problem all along—not the fact that its monitoring was lax and hence needed (and still needs) strengthening as experts have been saying, and not bailouts as the BB has been insisting (until this discovery now by the Deputy Governor)?

Speaking of problems, according to a report in Dhaka Tribune, “People involved in the sector say bad debts have increased as loans are sometimes approved on political consideration while directors of the banks take loans from each other's institutions.” Hmm... where have I read that before? Perhaps in almost every newspaper quoting experts from nearly every sector for the last gazillion years. Which points to another problem—the regulators must never read newspapers. Otherwise, they would have done something about it, right?

Take this as an example; according to a report in South Asia Monitor, “There is a general perception that the central bank is unable to probe into these irregularities due to political intervention. According to sources, a certain business group well known for its powerful political standing, has about BDT 68,000 crore in loans. The group directly and indirectly controls about 10 banks and financial institutions in the country. A few months ago they quietly took over a major private bank of the country too. The directors of the bank are representatives or selected persons of this group... One year ago the group's total credit from… [a] bank was BDT 1,600 crore. In just a matter of months this has increased to BDT 4,500 crore” (Default loans deplete Bangladesh banking sector, March 29, 2017).

Meanwhile, according to reports in the international media in general, there is a huge amount of defaulted loans “even outside of this” that is not being reported anywhere! According to the South Asia Monitor report, “On paper it is shown that these loans or investments are being regularly recovered. Funds for old projects are simply being shown as loans for new projects and adjusted as loan recovery. Loans are thus being provided to non-existent projects or hundreds of crore taka are being granted as loans to projects of just a crore taka or so. The only way to adjust these loans when it is time for recovery is to make allocations for yet another project.” In other words, we have a Ponzi (pyramid) scheme on our hands.

For those who don't know what that is, it is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. Until, of course, the music stops, and the last “fool investor” is left holding the bill (with his backside lacking a chair to firmly plant itself on), which in this case happens to be all taxpayers' no matter when the music stops playing.

While all this is going on, the government is going to allow, through the Banking Companies (Amendment) Act-2017, four family members, up from two, to be in a bank's board of directors for nine consecutive years, up from six. Now all we have to do is just wait a few more years till the Finance Minister and other regulators figure out that this too is yet another “insane” idea, which can only quicken the collapse of the current pyramid scheme in the banking sector.

But, perhaps I am being a little unfair to the BB. As recent news reports have revealed, it was actually the finance ministry that had “convinced” BB to greenlight the extension of family dictatorship, ahem… I mean directorship, in banks, and for giving licences for new banks to operate. So while the authorities look for the now numerous missing persons and the “BB's missing backbone”, here is an idea: since the finance ministry has now decided to do the BB's job, maybe we can abolish the BB altogether and save some money in preparation for the next round of bank bailouts (that is surely coming)?

As things stand, however, it is quickly looking more and more like no amounts of bailouts can put this humpty-dumpty (overly extended, yet hollow bank balance sheets) back together again—as experts have been saying from day one—despite the fact that regulators “claim to believe” that they can resuscitate these corpse like banks by providing them with never-ending blood transfusions in the form of bailouts. In fact, a number of recent indicators seem to point towards just the fact that the house of cards that the authorities have desperately been trying to hold up, is now heading towards its final, and not-so-thrilling, collapse.

These include the liquidity crunch in The Farmer's Bank (when the bank failed to honour a cheque twice), followed by the Bangladesh Industrial Finance Company's failure to pay a depositor's money, despite the massive bailouts the banking sector has been getting for years now. And in the middle of the insane policies that our regulators seem hell-bent on pursuing, who knows how many more will follow. But there is a chance that in the case of a “black swan event” (an occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict), the fall may happen at an unprecedented pace, creating havoc in the banking sector, as well as in the economy in general.

And that black swan event, in all probability, could involve the global economy. As experts had pointed out throughout 2017, banks in Italy, Ireland and other countries (and corners of the world) too are now barely standing on shaky legs. In today's globalised world, it doesn't take a rocket scientist to figure out (unless you are the Finance Minister it seems) that a banking crisis in one corner of the world has the potential to set off another in the opposite corner, particularly when banks are especially vulnerable (which ours clearly are).

Thus, amidst the “moral bankruptcy” that our societal ills are responsible for, according to Professor Rehman Sobhan, it is fully possible that we are now fast heading towards a financial and economic bankruptcy as well, unless those leading the charge towards a complete (moral) bankruptcy (you know who you are) decide to suddenly grow a conscience. Given that that is highly unlikely, however, perhaps it's time for us to find our own backbones and oppose the authorities in substantial enough ways to stop the “insanity” that has quickly come to “define our banking sector”.

Eresh Omar Jamal is a member of the editorial team at The Daily Star.