Introduction to the Banking Crisis
Effective banking sector reform cannot be achieved without holding accountable those who looted banks during the past Awami League government, particularly after 2017. The effort to recapitalise failing banks repeats the shameful history in which ordinary people paid for the failure of banks.
Causes of the Banking Crisis
The crisis in the banking sector is owed to systemic problems sustained by years of banking data manipulation by the past AL government, political lending, widespread corruption in the banking sector and bankers’ failure to uphold professional ethics. The situation of the banking sector was not so bad before 2017, but the fall started taking place after certain Islamic banks were taken over.
Holding Bank Looters Accountable
"Holding the bank looters accountable is undoubtedly central to the banking sector reform," said Nurun Nahar, deputy governor of Bangladesh Bank. Banks regularly suppressed non-performing loan data, giving a false impression of their financial strength so that they could enjoy dividends. The central bank alone cannot be blamed, as everyone was involved in the process, including directors and those in the management of commercial banks.
Improving the Banking Sector
However, the situation is improving with a strong accountability mechanism being enforced. The banking sector is regaining strength, enjoying independence and rejecting any biased and unethical practices. Towfiqul Islam Khan, additional director of the Centre for Policy Dialogue (CPD), said that the banking crisis is "less technical and more political." The central bank is supposed to be an independent entity, and unless it is allowed to act freely and bank looters are punished, crises will keep returning to the banking sector in the future.
Alternative Solutions
Towfiq offered the alternative to recapitalise failing banks with profits made by the central bank over the last few years. In the last financial year, the BB posted a profit of Tk 22,000 crore, which is far higher than the most profitable commercial bank. The BB made similar profits in the two years preceding the last financial year. If the central bank was responsible for the sector-wide damage, Towfiq said, why should it not use a portion of the profit made to rebuild banks being merged?
Criticisms of the Bank Merger Decision
The bank merger decision drew strong criticism from the speakers, who likened it to sparing looters and making the victims pay for the crime. Nehal Ahmed, a professor at the Bangladesh Institute of Bank Management, and MGK Jewel, a consultant at the Asian Development Bank, jointly delivered the keynote paper at the seminar. Citing examples from other countries, Prof Nehal Ahmed emphasised freeing the central bank from finance ministry influence to establish best practice in the financial sector.
Protecting Depositors’ Interests
Shahidul Islam Zahid, chairman of the Department of Banking and Insurance at Dhaka University, said that Bangladesh’s banks do not care about ordinary depositors and often serve the interests of oligarchs. He questioned the validity of the government’s plan to merge five troubled banks by injecting Tk 20,000 crore from the national budget. Muhammad Mahboob Ali, professor of economics at the Bangladesh University of Business and Technology, criticised Bangladesh’s Islamic banking system, calling it one of the worst in the world.
Conclusion
In conclusion, the banking sector in Bangladesh is facing a crisis due to systemic problems, corruption, and political lending. To reform the sector, it is essential to hold accountable those who looted banks and to establish a strong accountability mechanism. The central bank should be allowed to act independently, and bank looters should be punished. Alternative solutions, such as using the central bank’s profits to rebuild merged banks, should be considered. Ultimately, the goal should be to protect depositors’ interests and establish a stable and transparent banking system. Assuring depositors with five banks due for merger, Deputy Governor Nahar said about 90 percent of them with deposits below Tk 2 lakh would soon get a refund.
