The next time bomb

Khondokar Ibrahim Khaled | Update:

Despite the nation’s economic advancement and various achievements of the prime minister Sheikh Hasina-led government, the country’s banking sector has witnessed massive plundering of public resources in recent years. This situation has not only eclipsed the government’s achievements but also set up what may be considered as a time bomb for tomorrow.

The indicator for health of a bank is classified loan, which remains within the limit of 1.5 per cent in the developed economies where alarm bells ring if it exceeds 2 per cent.

In our context, the rate of classified loan within 3 per cent is expected. In 2017, balance sheets suggest, this rate is 32 per cent for the state-owned banks and 7 per cent for private banks.

The media reports on operating profit of banks published on 1 January do not in any way indicate actual profit. Provision and tax must be deducted from the operating profit to calculate net profit and there is no such indication in the reports.

Since there is huge gap in the rates of classified loans of the government and private banks, the two kinds of bank must be reviewed separately.

Owned by the government, the public sector banks are run and managed by the Bank and Financial Institutions Division of the Ministry of Finance. The ministry appoints the chairmen, directors and managing directors of these banks.

Here lies the crux of all problems. This is the division which appointed student leaders in Sonali Bank’s board of directors. This is the division which appointed Abdul Hye Bachchu as chairman of BASIC Bank. Such appointments are given without any ‘fit and proper’ test.

For the sake of security of public money, appointment should be given to those who have a bright image in society, and whose honesty, dedication and credibility are unquestionable. But these persons lacked such qualities.

As a result, the rate of classified loans of Sonali Bank has crossed 50 per cent while BASIC Bank has been robbed. The government is now running the banks with taxpayers’ money, a policy which is unethical. Has it brightened the image of the government? The bank division overlooked the central bank’s objection to the appointment of Abdul Hamid as Agrani Bank chairman due to allegations of corruption. This was a violation of law.

How can such activities of the banking division be explained? In parliamentary democracy, the ministry and minister concerned are responsible for such acts. We cannot understand how loss as a result of looting public money can be compensated by budgetary money? Once the minister said Taka 4,000 crore (Tk 40 billion) is not a big deal. If not to him, it is a big amount to the poor and it is when the paid up capital of the bank is Tk 8,000 crore (Tk 80 billion).

The private banks managed to reach a state of normalcy overcoming their initial challenges. In the late 1900s, Bangladesh Bank suspended 34 directors of private banks for massive irregularities as per law, and a major bank was restructured by appointing an administrator and by dismissing its board of directors.

But eventually the abettors of reckless corruption in government banks were being injected into the private banks. Corruption started affecting the private banks. In fact, members of the board of directors of the private banks are the masterminds of corruption there.

And the policy of expansion has instigated the decline. The unexpressed argument was: the BNP-Jamaat people had made a lot of money by obtaining licence of banks and the Awami League, too, needed money.

Ministers, members of parliament and top level leaders of the party obtained bank licences. However, no leaders of India’s Congress Party were chairman and director of any bank.

To run a business or bank is the job of an entrepreneur, not a political leader. Today’s problems in the banking sector would not have been arisen, if people having allegiance to the party were given licence for banks.

Has the resignation of the Farmers Bank chairman and its failure to pay back the depositors’ money not stigmatised the Awami League government.

Bangladesh Bank has the sole authority to issue license of banks. There was a provision for 'consultation' with the government but former governor Fakhruddin Ahmed repealed it by amending law, establishing the central bank’s absolute independence and adding the provision for 'due diligence' for issuance of licence. But the way the finance ministry is giving orders to the central in the name of recommendation for licencing new banks is not only immoral but also a clear violation of law.

According to rules, Bangladesh Bank will invite application seeking licence and make necessary scrutiny before issuance of licence. Until 2013, at least advertisements were published for the purpose, but this time, there was no such advertisement published and this is a violation of law and shows lack of transparency. Thus, the central bank has been made the ‘post office’ of the finance ministry. If this trend continues, the central bank will be ineffective and mis-governance will dominate the sector.

A draft for amendment of the Bank Company Act was sent to parliament in December. It has been proposed that four members of the same family (in place of two at present) can be nominated in the board of directors and each director can remain in the post for nine years (instead of six years currently). This raised a huge and cry in society and the matter is yet to be discussed in parliament.

Bangladesh Bank, in a letter to banking division, raised objection to the proposal. But, finance ministry has ignored the central bank’s position.

The parliamentary standing committee on the finance ministry, which earlier expressed its disagreement with the proposal, has mysteriously given its consent. Is this parliamentary democracy bowing down to evil forces?

When the first generation bank 'National Bank Ltd (NBL)' had two directors from one family, it was one of the top four banks in the country. The bank has five directors from the same family for a long time now, in violation of law.

Unfortunately, Bangladesh Bank could not go ahead further after asking the bank to explain the matter.

Instead of punishing the defaulters, the bill for amending the law has been sent to parliament in order to protect a family’s interest. The bank owners’ association is lobbying for the amendment.

However, banks do not operate the way other companies are run. The portion of shareholders’ money in banks amounts to less than 10 per cent of the capital. Needless to say, the depositors have more than 90 per cent of the capital. Another key party in the banks is the professional bankers.

This amendment proposal has been made ignoring two key stakeholders - depositors and professionals.

I hope the prime minister would stop this amendment in the interests of the mass people.

*The piece, originally published in Prothom Alo print edition, has been rewritten in English by Nusrat Nowrin and Farjana Liakat.

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