Reforms in banking sector are urgent

Economists and banking sector experts advised the merger of relatively weak and small banks at a discussion of Dhaka Forum on 16 January 2016. At that time, then-finance minister Abul Maal Abdul Muhith also spoke about decreasing the number of banks. But that advice did not work. Rather new private banks were approved even after 2016.

Seven years later, Bangladesh Bank governor Abdur Rouf Talukder gave the same advice at the bankers’ meeting on 31 January 2023. At the meeting with the managing directors (MD) of the country’s public, private and foreign banks, the governor said the central bank wants the weak banks to begin merger talks immediately.

According to the Bangladesh Bank sources, 40 out of 61 banks in the country are performing better. Of the remaining, some 8-10 banks could merge with others. For this, he advised MDs of better-performing and weak banks to initiate discussions among themselves.

The governor suggested this on the day when Padma Bank chairman Chowdhury Nafeez Sarafat reportedly resigned from the bank. Before that, the board of directors of the National Bank was also dissolved several days ago due to an internal feud in the board. Bangladesh Bank also had to issue bonds to keep Shariah-based banks alive.

A chaotic situation prevails in the banking sector due to irregularities, mismanagement and anarchy for long. Several studies found not only the defaulted loans are rising billions of taka are also being plundered from the banking sector.

Economists have long been saying the number of banks in Bangladesh exceeds the size of the country’s economy. But the government has been approving new banks one after another ignoring the economists’ concerns. It seems powerful people who established banks using their influence will listen to the good advice of the Bangladesh Bank’s governor. Many entrepreneurs take the money several fold more than they invest, and this can no longer continue.

Following the governor’s advice on the mergers of weak banks with the better-performing ones, questions are making rounds among bankers on why banks performing better will take responsibility for the weak ones. However, such a merger of banks has brought fruitful results in many countries, thus, the operating cost of banks will also decline significantly.

After taking charge of the governor on 12 July 2022, Abdur Rouf Talukder said at a press conference on 3 August of that year that 10 weak banks have been identified, and a senior official of Bangladesh Bank will monitor the progress of each of those banks. One and a half years have passed since then, and no reform has been made in the banking sector. Rather, Bangladesh Bank continues lending to weak banks to save them. This will go out of control as long as reform in the banking sector is delayed.

Awami League’s election manifesto talks about restoring discipline in the financial sector, but people have witnessed for 15 years that there is a huge gap between their words and activities. How much longer will people have to wait?