The Centre for Policy Dialogue on Saturday said that the country’s banking sector was plagued by financial scams, non-performing loans, inefficiency and slack monitoring and supervision in 2017.
The banking sector is facing a cronyism-like situation where scams, plundering and other financial crimes are taking place under one kind of shelter and patronisation of the state and its powerful section of people, the think tank said at a press briefing held at the CIRDAP auditorium in Dhaka.
The independent think tank arranged the briefing to release its first reading on the state of the Bangladesh economy in the fiscal year of 2017-2018.
The proposed amendments to the Bank Company Act increasing the tenure of board of directors of banks and allowing more members of a family on the board would reinforce crony capitalism in the sector which is already impaired by poor governance, the CPD said.
Embezzlement of public money by a handful of corrupt people and escalation of financial crimes indicate that the banking sector is in dire straits, it said.
The research organisation said that the most important task was to combat cronyism to bring about a profound change in the sector.
‘The current practice of recruiting board of directors on political grounds has to be discontinued, board of directors should be allowed to work without fear and favour, and the government should refrain from providing licences to new banks under political consideration,’ it said.
‘Cronyism has been created in the banking sector in which support and patronisation of the state have created scope for getting loans from banks for people linked with powerful quarters,’ said CPD executive director Fahmida Khatun.
The ongoing scams and plundering of money from banks are also taking place with one kind of patronisation of the state and its powerful segment, she said.
Scams, irregularities and indiscipline in the banking sector create financial crisis in a country, she added.
CPD distinguished fellow Debapriya Bhattacharya said that 2017 would be recognised as a year of scams in the banking sector, followed by rising non-performing loans, provisioning shortfall, accumulation of NPLs in the hands of few people, change in ownership of few banks through administrative measures and dire situation of new banks.
There were no steps or reforms to remove the crisis, rather the government initiated move to give licences to more new banks on political consideration, he said.
‘Cronyism reduces the scope of financial inclusion as people only within the network get fund, which also increases the chances of capital flight,’ he said.
Citing a study report, the CPD said that 65 per cent of banks in the country faced financial crimes during 2014-2017.
Financial reporting fraud in banks is more likely if the board of directors is dominated by insiders, it said.
At the briefing, the CPD also suggested that the government should adopt a conservative approach to economic management in 2018 as the government has entered the year with some weaknesses in financial stability and overall macroeconomic management.
It also raised questions about the quality of GDP growth as the growth has failed to generate employment and reduce poverty at the same rate. Rather inequality in assets, income and consumption is widening in the country, the think tank observed.
Debapriya said that weakness in the overall economic management marked the year 2017.
‘We don’t think that the government will initiate or complete any major reforms in the election year. So it should follow a conservative economic management policy with restrained private sector credit flow, active management of exchange rate, quality expenditure of public funds, controlled current account balance.’
The next general elections in the country will be held at the end of 2018.
CPD distinguished fellow Mustafizur Rahman said that economic activities might lose momentum in 2018 in case of failure in ensuring political stability in the election year.
The election year may add further risks to the economy with the existing weaknesses, he said.
Quality economic management and strong leadership in the finance ministry are required to face the situation, he added.
The CPD also identified weaknesses of the leadership of the finance ministry in three areas — lack of initiative for reforms, lack of coordination among related agencies including Bangladesh Bank and lack of authority to take decision — in economic management of the country.
CPD research fellow Towfiqul Islam Khan made a key note presentation at the briefing while research director Khondaker Golam Moazzem also spoke.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking