Bank reforms commission needed to control loan defaults

This question was raised by bankers and economists at a roundtable organised by Shujon (Citizens for Good Governance) on Saturday. They also came up with certain recommendations to overcome the crisis. These included appointment of an ombudsman for the banking sector, a debt recovery or asset management company to recover bad loans, provision to confiscate property in keeping with the verdict of the Artha Rin Adalat (financial loan court), abolishing the financial institutions division of the finance ministry, providing the central bank with full authority to control the banks, merging the other state-owned banks with the state-owned Sonali, Agrani and Janata banks.

The loan default problem in the banking sector goes way back. The government authorities do not deny it. The government has provided the loan defaulters with undue facilities from time to time in order to reduce the default, but to no avail.

Former finance minister Abul Maal Abdul Muhith occasionally blasted the defaulters, but took no tangible action. The present finance minister AHM Mostafa Kamal has also offered the defaulters all sorts of concessions in order to lessen the volume of default loans, but these efforts, too, have fallen flat.

The loan defaulters are too powerful to bother about any words or actions by the finance ministers. In fact, it is even more alarming to learn through the media that a large chunk of the default loans has been siphoned off overseas.

In all countries of the world, the banking sector is seen as one of the driving forces of the economy. If the banking sector itself is wobbly, then the entire business and trade sector, that is the overall economy, is bound to be affected. And that is very evident in the country.

At the roundtable, some speakers said that an operation should be launched in the banking sector akin to the RAB drive against casinos. A banker said, that while there may be significant differences between Awami League, BNP and Jatiya Party, they are in consensus when it comes to default loans. That is why the defaulters are safe during the rule of any government.

The main reason behind the increase in default loans is the lack of good governance in the banking sector and no control by the central bank. The government has ignored objections from the central bank and has gone ahead to give approval to one commercial bank after the other. The boards of directors of the banks are formed on political consideration.

The keynote presenter at the roundtable, economist Mainul Islam, recommended that the government merge a number of the state-owned banks. Those involved in the sector felt that the number of private banks was disproportionately high, compared to the size of the economy. That is why they felt, instead of draining money from the government funds to keep the weak banks alive, it made more sense to merge them.

The pragmatic proposal was made at the roundtable to form a strong bank reforms commission to overcome the crisis. Government policymakers agree to this, but the question remains as to what has prevented them so long?