A commission that may pull banking sector out of crisis

Published: 00:00, Feb 24,2020


THE banking sector heading for a fragile state because of a few individuals and entities that have largely held it hostage, as the Centre for Policy dialogue says, comes with worries. The amount of loans in default, as of September 2019, is reported to have reached Tk 1,160 billion, registering an increase by Tk 938.07 billion in 12 years, riding on the wings of the government’s lenient approach about the recovery of loans, especially loans that have been deliberately defaulted, flaws in the loan restructuring policy and poor governance and oversight in loan disbursement. As the government has failed to arrest the growing amount of loans in default, mainly in the absence of the required measures and the political will, five out of 35 schedule banks that run offshore banking units are recently reported to have faced Tk 4.48 billion in defaulted loans against their exposure through the units by 2019. Although the amount of defaulted loans in the offshore banking units in question is not that significant against 9.32 per cent defaulted loans in the entire banking sector, a warning has been sounded that the banks should be cautious about disbursing loans even through their offshore units as loans in foreign currencies are issued at lower interest rates.

But what comes with hopes in all this is a move for the institution of a banking commission. The government has for years largely deflected the demand for an independent banking commission that is required to emerge from the financial crisis that has been the manifestation of a deep-rooted set of problems plaguing the banking sector for long. This has been a long-running demand of economists since the swindling of Tk 35.47 billion by the Hallmark Group from the largest state-owned Sonali Bank came to light in 2012. While the government is reported not to have so far made any concrete decision on the procedure and the process, the move appears to have been consequent on a High Court ruling of February 13, 2019 in which the court asked the government and the Bangladesh Bank why an independent banking commission would not be established. While economists expect from the commission short-, mid- and long-term measures and a pathway to salvage the banking sector, they also demand that the commission should have the powers to deal with capital flight — as Bangladesh’s illicit capital outflow is reported to be very high among least developed countries which is equivalent to 36 per cent of Bangladesh’s tax revenue and 3 per cent of the gross domestic product in 2015 keeping to a UN Conference on Trade and Development report made public in November 2019 — and to identify why the central bank fails to enforce its regulations.

While economists and experts believe that a banking commission could be of much help in the worrying situation of the banking sector, all believe that the commission should be adequately empowered also to deal with individual banks and fund embezzlement, which has pushed the entire banking sector in a deplorable condition. The government must also afford the commission enough power for a greater accountability of the sector and meaningful reforms in the banking system.

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