Banks need real independent directors, not cronyism

Bangladesh Bank governor Abdur Rouf Talukder addresses a session on Long Term Finance on the second day of Bangladesh Business Summit at the Bangabandhu International Conference Center in Dhaka on Sunday.
Prothom Alo

Speakers called for appointment of more independent directors with more freedom in banks instead of appointing the relatives of the bank owners to ensure good governance and reduce defaulted loans.

Defaulted loan is like cancer and if it is not reduced in shortest possible time death is certain as everyone including shareholders and depositors are losing their money.

Speakers made the call while addressing a session on Long Term Finance on the second day of Bangladesh Business Summit at the Bangabandhu International Conference Center in Dhaka on Sunday.

Moderated by former governor of Bangladesh Bank Atiur Rahman, incumbent Bangladesh Bank governor Abdur Rouf Talukder was the chief guest of the session. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) organised the three-day summit to highlight the economic and market strengths as well as trade and investment opportunities in Bangladesh to the world.

Session panelist Ali Reza Iftaker, managing director and chief executive officer at Eastern Bank, began discussion on good governance and loan default in the banking sector. Replying to a query from the moderator, the Eastern Bank CEO said there is a lack of good governance in banks and their boards of directors in the country. Responsibilities of banks’ board and management are fixed, yet many don’t abide by it. As a result, loans are not being sanctioned as per the rules and these are turning bad loans later.

At that time, moderator Atiur Rahman asked can this problem be solved by appointing more independent directors.

In reply, Ali Reza Iftaker said that can be a solution and the director must be independent in true sense, and it would not work if cousins or brothers of company owners are appointed as independent worker.

Concealing of default loan would bring no benefit and solution, he added.

Bangladesh Bank governor Abdur Rouf Talukder said there has been long-term investment on short-term deposit in the country, creating inconsistency between assets and liabilities and that is why default loan is on the rise.

As of December last year, according to Bangladesh Bank, the amount of default loan in the country’s banking sector stood at Tk 1.21 trillion.

When asked, private research firm Policy Research Institute (PRI) executive director Ahsan H Mansur told Prothom Alo if independent directors dominate the bank’s board, it will be possible to play more roles in banking operation.

Bangladesh Bank and stock market regulator Bangladesh Securities and Exchange Commission (BSEC) can appoint more professional individuals as independent directors, he said adding, honorarium of independent directors should be increased to attract more skilled persons since an independent director, who spend entire day for a board meeting, receives Tk 7,000 and the amount is very low.

Independent directors do not hold shares and they are appointed to project the interest of general depositors. In Bangladesh, banks those are controlled by various families are appointing the relatives and the close ones of the bank owners as independent directors. Banks with more independent and representative directors witness more irregularities and corruption these independent directors play no role other than enjoying privileges.

On Saturday, chairman of Grameen Bank’s board of directors AKM Saiful Majid at a lecture on “ethics in banking” at Bangladesh Institute of Bank Management (BIBM) said the atmosphere of economic sector has been damaged drastically over past four decades because of unhealthy corporate culture.

Loan scandal has hit BASIC Bank, Padma Bank, Islami Bank and Sonali Bank because of a greedy mindset of the bankers and that has intensified a lack of trust among people and depositors. All these four banks are run by representative and independent directors while the banks owners remain behind the scene and still enjoy unethical privileges.

Speaking to Prothom Alo, former World Bank Dhaka office lead economist Zahid Hussain said brining the role of independent director to the fore is like distracting the attention from the root of the problem. If bank’s board becomes professional, independent directors have opportunity to play their role and that is not possible amid the supremacy of family.

The board has no accountability and that is the problem of the bank. It is responsibility of the regulatory agency to ensure accountability when bad governance indices like default loan continues to rise, he added.

Replying to a query on whether Bangladesh Bank can play its role as the regulatory body, Zahid Hussain said the regulator itself is now being regulated.

Stock market for long term finance

At the session, Shanta Asset Management vice chairman Arif Khan said the country would face a deficit of $10 billion in its investment target for 2040. To date, 99 per cent of investment has come from banking sector and banks have made long term investment with short term deposit, thus, inconsistency arises between assets and liabilities as well as quality of wealth falls.

Addressing the event, Chittagong Stock Exchange chairman Asif Ibrahim said there have been some reforms in share market and that has played role in market expansion and development. Government bond has been listed in the market and now it is necessary to reform tax structure for share market.

Regarding this, Bangladesh Bank governor Abdur Rouf Talukder said the securities and exchange commission will step in to arrange capital. if necessary rules and regulation should be reviewed and Bangladesh Bank would provide all kinds of policy assistance for the development of share market, he assured.

Bangladesh Securities and Exchange Commission commissioner Shaikh Shamsuddin Ahmed said a challenge has been created over inflation, exchange rate and foreign exchange reserves and they are trying to come out of it.

Exchange rate to become market-based

Bangladesh Bank governor Abdur Rouf Talukder said the central bank is working on inflation, exchange rate of dollar, and interest rate. Initiative will be taken to decrease inflation by reducing demand and exchange rate will become market-based. Lending rate has already been increased, and corridor system will be introduced after fixing market-based interest rate, he added.

Bangladesh Bank has set the bank interest rate at 9 per cent while lending rate cap for consumer loans is 12 per cent. Price of dollar is being checked in various ways. Price of per dollar is now set at Tk 107 for remittance, Tk 104 for export and other earnings and Tk 106 for import. Besides, the central bank is selling dollars at Tk 102 from foreign reserve.

Alternative ways of finance

Addressing the session, Brummer & Partners (Bangladesh) Limited founding managing partner Khalid Quadir said Bangladesh has become an investment hub as many products are manufactured in the country, which has cheap labour. Various private firms, individuals and families have investment money worth about $8 trillion and people concerned in Bangladesh are not paying attention to them and running after the lending agencies like World Bank and Asian Development Bank.

HSBC Bangladesh chief executive officer Mahbubur Rahman said if foreign investors make investment, their exit should be made easier too.