Banking Sector Reform in Bangladesh
The banking sector in Bangladesh is facing a crisis due to systemic problems, including data manipulation, political lending, and corruption. To address this issue, experts emphasize the need to hold accountable those who looted banks, particularly during the past Awami League government.
The Current State of the Banking Sector
The situation in the banking sector was not always this bad. According to Nurun Nahar, deputy governor of Bangladesh Bank, the fall of the banking sector started after certain Islamic banks were taken over in 2017. The decision to merge several banks and their recapitalization was made to protect depositors and prevent a systemic crash. However, this move has been criticized for sparing the looters and making the victims pay for the crime.
Causes of the Banking Sector Crisis
The banking sector crisis is owed to several factors, including:
- Systemic problems sustained by years of banking data manipulation
- Political lending
- Widespread corruption in the banking sector
- Bankers’ failure to uphold professional ethics
These factors have led to a significant increase in non-performing loans, with defaulted loans rising from Tk 22,000 crore in 2008 to about Tk 5 lakh crore in 2024.
The Role of the Central Bank
The central bank has been criticized for its failure to regulate the sector and surrender to political pressure. Nahar wondered what steps could withstand such an assault on the central bank’s independence. She emphasized that the central bank alone cannot be blamed for the crisis, as everyone was involved in the process, including directors and those in the management of commercial banks.
Alternative Solutions
Towfiqul Islam Khan, additional director of the Centre for Policy Dialogue (CPD), suggested that the central bank could use a portion of its profit to rebuild banks being merged. In the last financial year, the Bangladesh Bank posted a profit of Tk 22,000 crore, which is far higher than the most profitable commercial bank. This alternative solution could help address the banking sector crisis without relying on taxpayers’ money.
Experts’ Opinions
Experts, including Prof Nehal Ahmed, MGK Jewel, and Abdul Mannan, emphasized the need to free the central bank from finance ministry influence to establish best practice in the financial sector. They also highlighted the importance of holding bank looters accountable and punishing them to prevent future crises.
Conclusion
The banking sector crisis in Bangladesh requires a comprehensive solution that addresses the systemic problems and holds accountable those responsible for the crisis. The central bank must be allowed to act independently, and bank looters must be punished to prevent future crises. By implementing these measures, the banking sector can regain its strength and provide better services to depositors. The government’s plan to merge five troubled banks by injecting Tk 20,000 crore from the national budget must be carefully evaluated to ensure that it does not spare the looters and make the victims pay for the crime. Ultimately, the goal is to establish a stable and trustworthy banking sector that serves the interests of all stakeholders.
