In his budget speech for 2019-20, former finance minister AHM Mustafa Kamal hinted that the government was thinking of undertaking a number of reforms to bring about discipline in the banking sector.

He would go on to refer to such reforms while announcing the next four budgets, but only a few were ever implemented, leading to the sector becoming even more undisciplined.

The government and the central bank managed to take some initiatives, including amending a bank company act and a central bank roadmap to address governance issues.

Yet, good governance in the banking sector remains a far cry as these measures alone remain ineffective.

So, as new finance minister, Abul Hassan Mahmood Ali, gears up to place his first budget for FY25, the lack of good governance in the banking sector remains a widely discussed issue.

At present, the banking sector is struggling with a high volume of bad loans and stressed assets alongside weak financial health of some banks, liquidity challenges in a good number of Islamic banks and weak regulations of Bangladesh Bank.

At the end of 2023, defaulted loans in the banking sector stood at Tk 145,633 crore, up 64.12 percent from Tk 88,734 crore at the end of 2020.

Meanwhile, stressed assets, including written-off loans and rescheduled loans, stood at Tk 377,922 crore, central bank data showed.

Central bank officials also said bad loans increased sharply in the January-March quarter this year.

For instance, till March of this year, state-run Janata Bank's bad loans stood at Tk 30,495 crore, or 31 percent of its disbursed loans, up from Tk 25,009 crore, or 25 percent of its total loans, at the end of December last year.

Similarly, soured loans at Sonali Bank stood at Tk 14,988 crore, or 14.84 percent of total disbursed loans, till March this year, up from Tk 13,340 crore, or 13.23 percent of total disbursed loans, at the end of last year.

A dozen banks, including Padma Bank, National Bank, Basic Bank, Janata Bank and ICB Islamic Bank, have become weaker in this manner.

Some Islamic banks, including Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank are facing severe liquidity crises.

These Islamic banks are faced with a deficit in their current accounts with the central bank but the banking regulator continues to provide liquidity support to them without any collateral, central bank documents showed.

The banking sector has also been contending with a US dollar crisis for more than two years due to higher outflows than inflows of foreign currency.

In a big example of weak central bank governance, the BB recently bypassed its own rules in approving the appointment of Mohammad Shah Alam Sarwar as the strategic adviser of IFIC Bank.

The central bank gave the special permission following an application from the board of the private commercial lender aimed at employing its former managing director as an adviser. This contradicts the central bank's rules.

As per rules, a bank's managing director or any official of up to two levels immediately below the managing director cannot be appointed as an adviser or consultant by the same lender until five years have passed after retirement, discharge or expiry of a contract.

Sarwar's tenure as managing director and CEO of the bank ended on May 13 this year.

Industry insiders also said the lending rate cap, introduced by the central bank in April 2020 in the open market economy, was another example of the regulator's lack of autonomy as it apparently came about following pressure from the government.

Another former finance minister, Abul Maal Abdul Muhith, hinted at forming the country's first banking commission in his budget announcement for the 2015-16 fiscal year.

However, there was no further discussion regarding that topic after FY20.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), during a dialogue recently said an independent banking commission was needed to ensure good governance in the sector.

She added that a goal-specific, time-bound, inclusive, transparent, unbiased and independent citizen's commission on banking should be set up to bring transparency to the sector.