Central bank losing control

Kazi Zahidul Hasan :
The central bank is losing regulatory control over the banks and financial institutions due to undue interference of the Ministry concerned.
The Banking Company Act, 1991 empowered the central bank to regulate banking sector as an autonomous body, but in reality the central bank fails to operate independently after the Ministry of Finance established its own Banking Division to interfere in the activities of the banks.
The central bank recently turned down proposals for setting up two new private commercial banks. In response, the Ministry of Finance instructed it to prepare primary courses to allow parties to get licences to set up new banks and it started the process.
Two private banks recently faced hostile takeovers by a powerful quarter and some managing directors were forced to resign. But the central bank was helpless to intervene in the situation.
 “The central bank fails to function independently due to external political pressure, lack of accountability and honesty of its officials and leadership crisis,” former BB Deputy Governor Dr Khondoker Ibrahim Khaled told The New Nation yesterday.
He said undue interference by the Finance Ministry is also hurting independence of the central bank. Referring to a recent instance, he said, “BB moved forward to issue license of two new banks under pressure from the ministry although it was against opening new banks citing present condition of the banking sector.”
 “Such interference may have profound implications on the whole banking sector,” he warned.
Regarding the regulation of public banks, Dr Khondoker Ibrahim Khaled said, “BB has a legal limitation to regulate state-owned banks. Such a limitation has paved the way for rampant corruption in public banks. BB should be empowered to regulate both state-owned and private banks by abolishing the Section 46 of the Banking Company Act.”
 “BB is an autonomous body. But it cannot function independently due to the government’s improper policy,” former BB Governor Dr Salehuddin Ahmed told The New Nation. Criticizing the government to form a Banking Division, he said, “BB has lost independence and control over the banks with the establishment of the Division.”
 “Full autonomy of the BB is necessary for turning it into a dynamic regulator. On top of this, BB should also ensure accountability of their officials to address corruption and irregularities in the banking sector,” added Dr Salehuddin Ahmed.
Asking not to be named, a former banker told The New Nation that the ministry has established the Division to implement the government’s political agenda. “The government has sinister goals and it opened the Division to achieve the goals including issuing new bank licenses in favour of a powerful quarter.”
 “We need a strong central bank to have a vibrant banking sector. But strength of the bank has weakened due to discrepancy in the government’s policy,” Dr Toufic Ahmad Choudhury, Director General (DG) of BIBM told The New Nation.
BB incumbent Governor Dr Fazle Kabir could not be reached for comment despite several attempts on his cell phone.