The Bangladesh Bank’s (BB’s) recent decision to curtail special liquidity support to nine struggling banks, including five Shariah-based lenders, is a belated attempt to staunch the bleeding. While it may temporarily alleviate the central bank’s burden, it does little to address the root causes of the crisis.
These banks, plagued by liquidity shortages and allegations of irregularities, have been on life support for far too long, propped up by the central bank’s generosity.
The question is not merely why the support is being reduced now, but why it was extended in the first place for such an extended period.
The central bank’s claim of reducing the “burden” of special liquidity support is a euphemism for admitting that it has been bailing out these institutions at the taxpayers’ expense.
The fact that this support was largely discretionary, as former governor Abdur Rouf Talukder acknowledged, raises serious concerns about transparency and accountability.
The origins of this crisis can be traced back to the reckless lending practices of several Islamic banks, which exposed deep-rooted governance failures and a disregard for regulatory norms.
The central bank’s response has been reactive rather than proactive, with observers and coordinators appointed only after the damage was done.
Experts rightly point out that the central bank must prioritize depositors’ interests and adopt a more stringent approach to rescuing ailing banks. This includes a thorough assessment of their financial health, reforming their boards, and potentially imposing stricter penalties on those responsible for mismanagement.
The current situation underscores the urgent need for a comprehensive overhaul of the banking sector. Mere band-aid solutions will not suffice.
The central bank must demonstrate its resolve to protect depositors and maintain financial stability by taking decisive action against weak and mismanaged institutions. It is time for the Bangladesh Bank to move beyond crisis management and adopt a forward-looking approach that focuses on prevention rather than cure.
The future of the banking sector and the confidence of depositors depend on it.
