Punish unruly banks, regain public confidence

RECENTLY the IMF expressed dissatisfaction over the central bank’s failure to control the state-owned banks which in turn is hampering investment and thus slowing down the GDP growth. A national English daily reported it on Friday.Bangladesh Bank is not exercising its regulatory power fully as per the amended Banking Company Act to control the state banks and failed miserably in taking punitive actions against serious violations of their Memorandums of Understanding, the International Monetary Fund observed. Officials of Bangladesh Institute of Development Studies (BIDS), Policy Research Institute (PRI) and Bangladesh Institute of Bank Management (BIBM) voiced similar opinions while participating in a recent pre-budget meeting. BB relaxed its rescheduling policy because of political unrest last year and that is why the present scene of default loans seems less severe than what would have been without the eased rules. This is reportedly part of the reason the IMF is pressing for more provisioning against default loans.The economists emphasized that BB should restructure the bank’s management and establish direct control over it and the government should dissolve the board of directors. They also expressed their concern over the banking sector, especially the state-owned banks. The greatest challenge is to increase investment. In addition to lack of infrastructure and an uncertain political situation, mismanagement in the banking sector is hurting the economy, economists said.  Among the list of inefficient and corrupt banks BASIC bank has continued to flout rules even after the media ran several reports on its massive irregularities. And everyone knows the saga of Sonali Bank. There had been two symmetrical underground robberies allegedly with the involvement of insiders. These two robberies happened within a short time of the Hall-Mark Scam – the greatest banking sector scam in the country’s history. Furthermore, Sonali Bank has recently disclosed that last year hackers swindled a great deal of money during a foreign exchange operation of the bank. This hacking incident is also an inside job – opined IT experts. Consequently Sonali Bank has not been paying bills amounting to Tk 1,700 crore it purchased from other banks and that has led to a lack of confidence in the banking sector, they said. Internal control of these state-run banks are weak and apparently if the lenders fail to restore internal management, investment will not increase. We agree with most of the prominent economists position that Bangladesh Bank, as the regulatory authority, can raise a special fund, if necessary, to pay off the bills for now. BB must take punitive actions at once over the violation by the state-owned banks regarding dealing with the conditions of the Memorandum of Understanding signed with the central bank. Also, as it is an open secret that state-owned banks managerial bodies are formed by partisan alliances not based on efficiency and leadership qualities or experience in the banking sector. After unprecedented blunders by state-owned banks in the last couple of years, it is high time that the government should give full consideration about the gradual corporatization of these banks and thus rescue the banking sector in particular and the economy in general.