Khondokar Ibrahim Khaled is a former deputy governor of Bangladesh Bank. He was chairman of Bangladesh Agriculture Bank and also discharged duties as managing director of Sonali Bank, Agrani Bank and Pubali Bank. In an interview with Prothom Alo, he spoke on various aspects of the banking sector and the economy.
Prothom Alo: Finance minister AHM Mustafa Kamal recently announced that loan defaulters would be given certain facilities. He initially said loan defaulters would have to pay 7 per cent interest. Then he later said they have to give 9 per cent interest. However, those who repay their loans in timely installments, have to pay more interest than loan defaulters. How do you view this?
Khondokar Ibrahim Khaled: The finance minister’s statement will label the government as friendly towards loan defaulters. Banks run on the basis of relations between bankers and clients. It is for the banks themselves to decide who are the good clients and the bad clients. But according to the finance minister, good and bad clients would be identified through auditing, by chartered accountants. As far as we know, auditors examine the documents and identify flaws, not identify good and bad clients. Due to the intervention of auditors, the relations between the banks and the clients will exist no more.
Prothom Alo: Do you think that the government is taking this decision to facilitate any particular quarters?
Ibrahim Khaled: Many think so. Default loans were restructured against the will of Bangladesh Bank four years ago when Atiur Rahman was the governor. Although it was not a violation of the law, the step, however, did not go by the law. Those who took Tk 5 billion in loans were considered big borrowers. This facility was given to those who were unable to pay despite rescheduling loans thrice. That was for 15 years. The step was taken to mainly facilitate 11 top loan defaulters. Of them, only two defaulters paid some money. All of them took huge loans. But the government could not take action against the influential quarters. It seems they will never repay their loans.
Prothom Alo: Isn’t it unfair to those who repay their loans regularly?
Ibrahim Khaled: It is not only unfair, but also an oppression against them. Bankers are worried over such a decision. Many express their concerns in private. According to them, the relations between bankers and clients will come to an end. Loan defaulters will not care, if they receive facilities one after another from the government. Banks have many tools to judge good and bad clients. There is no scope to label good those who could not pay loans after rescheduling loans for three times. The finance minister’s statement indicates that big and habitual loan defaulters are being rewarded.
Bangladesh Bank cannot call anybody a loan as it wishes. As per the Basel regulations, the definition of default loan has been made internationally and is followed in each country. The decision the government is going to take is a violation of the treaty. This will taint image of the country abroad. Bangladesh has complied with Basel III till date. The implementation of the finance minister’s statement will violate this rule.
Prothom Alo: The World Bank in a report identified banks as the weakest sector in Bangladesh. How do you view that?
Ibrahim Khaled: Not only WB, Asian Development Bank (ADB) in its report also made a similar observation. Both the global lending agencies suggested reduction of default loans on emergency basis. The banking sector is likely to face disaster if the finance ministry does not take effective measures. The process the finance minister is going to take will not reduce the actual default loans. Rather defaulters would be encouraged and this may invite disaster in the banking sector.
Prothom Alo: The finance minister said this process started during the term of the previous finance minister Abul Maal Abdul Muhith. A committee was formed at that time.
Ibrahim Khaled: I came to know that a move was taken during the tenure of the former finance minister. Although the committee was formed, the decision is going to be implemented under the current finance minister as per the proposed formula. A meeting of bankers was held after the present government came to power. A businessman, who was acquitted of default loans through a court order, in the meeting said, “You are talking about default loans, we would frame such rules that nobody will remain loan defaulters.”
Prothom Alo: The finance minister recently administered oaths to Sonali Bank officials that they would not disburse loans in exchange of bribes.
Ibrahim Khaled: I have been in bank management since 1963. I have never heard of such an oath taking ceremony in the banking sector. The urgent task is to make the bank officials accountable instead of administering oaths. They work according to the law. They will be punished if they flout the law. Oath taking is not alternative to the accountability. It is not true that the bankers are not serious about saving the banks. Some banks have been successful in recovering default loans. I have seen that the current managing director of Sonali Bank recovered loans by visiting different areas. There is no alternate to good managers in running banks smoothly.
Prothom Alo: We have bureaucrats and chartered accountants as ministers. Now we have got a businessman as a minister. How do you view this?
Ibrahim Khaled: It doesn’t matter from which profession the finance minister comes. The matter is whether he discharges his duties with efficiency and honesty. Former minister Muhith was personally an honest and skilled bureaucrat. But he could not run the banking sector properly. He compromised. AMS Kibria was also a bureaucrat. He did not compromise. An influential quarter of rich people have emerged and they easily manage the government. They are not under the control of the government.
Prothom Alo: The government is supporting the state owned banks for survival. How do you view this?
Ibrahim Khaled: State owned banks are like no man’s land. Anybody can interfere with them. According to Sections 46 and 47 of Bank Company Act, Bangladesh Bank can sack any director if it thinks he has committed an offence. Moreover, BB can appoint an administrator by removing directors of the entire board. But the state owned banks are kept out of the purview of the legislation. The government has given responsibility to the banking division to run the state owned banks. Those who are in the banking division have no skills or manpower to run banks. The bureaucrats formulated this law so that Bangladesh Bank cannot remove directors and chairmen as bureaucrats become chairmen and directors after their retirement. The authority of Bangladesh Bank has been curtailed. These double standards should be stopped.
Prothom Alo: Many economists say there was financial disorder and corruption in the primary stage of capitalism so there is no reason to be worried.
Ibrahim Khaled: I differ. It is true that there was disorder in the capitalist countries like USA in the primary stage, but this did not happen in Norway, Sweden, Denmark or Germany as the welfare was the basis of those countries. Bangladesh’s economic growth increases between 7 and 8 per cent. The Centre for Policy Dialogue (CPD) in a study said the assets earned through the growth are owned by five per cent of the people. That means 95 per cent are not benefited by the growth. But Bangladesh fought for independence against wealth being with just 22 families. Bangabandhu used to talk about a society free from exploitation. There is a constitutional compulsion in this regard.
Prothom Alo: Why is investment not increasing along with growth?
Ibrahim Khaled: Earlier the electricity crisis was the one of the main reasons. This crisis has been almost solved over the last couple of years. I think there is a lack of confidence among the businessmen. Many do not think that they would be able to recover the money if they invest. They say we don’t need money, we need favourable environment. The loan interest rate is high due to default loans.
Prothom Alo: Do you see any difference in environment before and after 30 December?
Ibrahim Khaled: There was confusion among businessmen about a year ago before the election. They feared political unrest. This confusion prevails even after the election. Only a number of people receive facilities the government is offering. Top businessmen are getting the facilities. Small and medium entrepreneurs have to be given incentives to increase investment. There is no way to reduce income disparity without the development of small and medium entrepreneurship.
Prothom Alo: Bankers had corporate tax reduced before the election. Earlier, they increased the tenure and size of the governing body.
Ibrahim Khaled: It sounds like family dynasties in the banking sector. Some bank owners became close to the government and avail various facilities. Corporate tax was reduced. Family dominance over the banks was established. If Bangabandhu was alive, he wouldn’t allow this. He stood up against 22 families.
Prothom Alo: Why couldn’t you recover default loans when you were chairman of Krishi Bank?
Ibrahim Khaled: There is a difference between the agriculture bank and commercial banks. Farmers are very poor borrowers. They become loan defaulters due to family crisis or natural disaster. Besides, the bank incurs losses as loans are disbursed at low interest rates. The government policy should be changed about these banks.
Prothom Alo: It is the responsibility of Bangladesh Bank to monitor the banking sector. Why was the authority of the central bank curtailed?
Ibrahim Khaled: This has been dangerous. If the central bank is weakened, people have no guarantee to getting back their money deposited in the banks. The authority of central bank is not curtailed anywhere in the world. Modi’s government in India initiated a move to divert some money from the Reserve Bank of India to another sector. The governor resigned protesting against the move. Later the government backtracked from the decision.
Prothom Alo: Is there any such instance in Bangladesh?
Ibrahim Khaled: Nobody resigned in protest of such a move in Bangladesh. However, some took a tougher stance. Loan defaulters were afraid when Lutfar Rahman Sarker was the governor.
Prothom Alo: You suggested empowerment of the central bank. A huge amount of money was stolen from the Bangladesh Bank.
Ibrahim Khaled: Some of the money stolen from the central bank has been recovered. A case was filed against the Rizal Bank in Philippines. The rest can be recovered hopefully. Curtailing the power of Bangladesh Bank is more dangerous than the heist. If the power of BB is not reinstated, the banking sector will collapse.
Prothom Alo: The new finance minister is going to present new budget. What do you expect from the budget?
Ibrahim Khaled: Many people have many expectations. The announcement of the finance minister will certainly fulfill expectations of some people. But the main question is whether it will fulfill the expectation of the majority. The expectation of the majority is to reduce the high disparity in economy.
Those who are poor in the society should also get benefits of the development. We can rely a bit on the prime minister as she wants to do something for the poor. She is eager to widen the social safety net programme. The poor people are benefited under the social safety net programme.
Support for small and medium entrepreneurs has to be raised if the economic benefits are to reach most of the people. As subsidies are given to agriculture, small and medium entrepreneurs have to be given subsidies. Small industries may grow as a linkage of big industries. Different small industries have grown centering Toyota in Japan. We have also some small industries centering RMG in our country. If small entrepreneurs are facilitated and subsidised, most of the people will be benefited. Under this process, income disparity will be reduced.
*Sohrab Hassan is joint editor of Prothom Alo. This interview was published in the print edition of Prothom Alo and has been rewritten here in English by Rabiul Islam