The sum of the defaulted loans in the country’s banking sector increased by 417 per cent against a 312 per cent increase in the amount of credit between 2009 and 2019.
The Bangladesh Bank’s internal weaknesses along with the pressure on it from external quarters, including political forces and mischievous businesses, have pushed up the loans thus putting the country’s banking system on the verge of collapse.
These observations were made by Transparency International Bangladesh in a press conference on Tuesday on ‘Banking Sector Supervision and Regulating Defaulted Loan: Governance Challenges of Bangladesh Bank and Way Forward’.
At the briefing, TIB presented a research paper on the topic, conducted by a three member team from the corruption watchdog, including its director (research and policy) Mohammad Rafiqul Hassan.
Asked whether the internal or the external factors were more responsible for the surge in bad loans, TIB executive director Iftekharuzzaman said, ‘Despite having the legal limitations, we earlier observed that the central bank played an effective role when the legal structure was almost the same.’
‘We would not have come so close to the ditch if the leadership in the BB had an honest spirit and efficiency,’ he said.
Iftekharuzzaman said that the central bank had completely failed in terms of containing the soaring defaulted loans in the country’s banking sector.
Besides, the BB has become non-functional in overseeing the sector while political influence has taken an institutional form and businesses captured political power, the TIB ED commented.
Even after the formation of an independent banking commission was announced no visible progress is yet to be seen in this regard, he added.
Due to massive irregularities and the deterioration in the central bank’s control over the banking system, the sector has reached the brink of collapse, said Iftekharuzzaman.
The research, based on information and data from 2010 to 2020, was conducted to examine independence of the central bank, its monitoring capacity, transparency, accountability, and how it did in preventing irregularities and corruption.
In the presentation, Rafiqul Hassan mentioned that the defaulted loans in the banking system increased to Tk 1,16,288 crore in September last year from Tk 22,481 crore in 2009.
The bad-loan figure would be around Tk 3 lakh crore if the written-off loans worth Tk 54,463 crore is added to the IMF-calculated Tk 2,40,167 crore in defaulted loans, he said.
However, the figure stood at Tk 96,116 crore at the end of June due to the policy relaxation awarded to the defaulters thus demoralising the honest borrowers.
The research mentioned legal limitations, political intervention and pressure from the business sector as the external reasons for the situation.
It specified lack of capacity in the leadership, oversight and transparency and accountability, and irregularities and corruption in oversights as the four internal challenges within the BB in tackling the mounting defaulted loans.
Asked about TIB’s research findings, BB spokesperson and executive director Md Serajul Islam differed with the observations made regarding the central bank leadership.
Serajul told New Age that the central bank was functioning properly under a right leadership and its capacity to oversee, regulate and inspect the banking sector remained intact.
As a result the defaulted loans in the country’s banking sector dropped to 9.16 per cent at the end of June this year from 11.69 per cent a year ago, he said.
About the policy relaxation, the BB spokesperson said that the relaxation aimed at reducing defaulted loans and the target was already achieved.
It cannot be analysed right now what its impact would be in future, he said.
TIB made 10 recommendations, including empowering the BB to establish full control over the state-owned banks, setting specific guidelines on the appointment and termination of the BB board members, governor and deputy governors, and increasing the number of posts for the experts in the BB board by reducing representation from the government organisations.
It also recommended scrapping of the provisions in the Bank Company Act which were against depositors and allowed the bank directors to establish kinship on the board and publishing list of the borrowers who became defaulters even after receiving rescheduling facility for several times.
The time for inspection of the banks and the number of their inspections by the central bank should be increased and the inspection team must be designated with some power to take instant decision and measures while conducting inspections, TIB further recommended.
TIB also asked for taking exemplary measures against the irregularities and corruption which would be detected during the preparation and implementation of the investigation report.
The corruption watchdog also sought adequate provision against those defaulted loans pending before the court for proceedings.
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