Recommendations alone can’t resolve banking crisis

Published: 00:05, Jul 16,2018

 
 

The banking sector has become a growing malignancy for the economy because of loan irregularities, gross mismanagement and undue interference of the politically appointed bank boards. Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank and BASIC Bank have become safe havens for rule violators as their boards illegally dictate loan approval process. The defaulted loans of eight state-owned banks, 40 private sector banks and nine foreign banks rose to Tk 74,303 crore in 2017 from Tk 62,172 crore in 2016. In this context, the Financial Institutions Division issued 26-point recommendations in April. Keeping to short-term recommendations, the banks were expected to disclose the identity of the defaulters. It has also provisioned for punishment for failure to recover bad loans and reward for realising bad loans. However, the scam-hit bank managements paid no attention to it. This proves yet again that governance and monitoring mechanism barely exist in the banking sector.
The Financial Institutions Division made the recommendation that the identity of big loan defaulters will be regularly disclosed to expedite the process of loan recovery by the state-owned commercial banks. The provision for publication of identity of defaulted borrowers is also stipulated in the Bank Company Act 1991, but it has never been enforced. It is disappointing that months after the recommendations were issued, ranking Bangladesh Bank officials are showing reservation about the matter. The division was supposed to set up a cell to monitor loan defaulters and the law ministry to set up a separate bench for speedy disposal of writ petitions against loan recovery. The Bangladesh Bank appears hesitant about implementing this step and considers it a duplication of existing effort as it already has a monitoring cell for big loan defaulters. Recommendations have, thus, remained only on paper, with no signs of implementation. At the pace the two crucial regulatory authorities in the banking sector are moving to resolve the grave crisis, it will not be mistaken to suggest that they are directly and indirectly leaving room for the loan scams to continue.
The crisis in the banking sector is the result of long-standing inefficiency and intransparency in credit approval, credit administration and credit oversight, poor selection of borrowers, politically motivated lending and negligence in risk management. It is, therefore, not enough on part of the Financial Institutions Division to simply make some elaborate recommendations. It must have an implementation plan with effective monitoring. The government must bring big wilful loan defaulters to book; otherwise, it will be deemed to be abetting such financial crimes. More importantly, an independent banking commission for the banking sector is the demand of the time.

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