Bank supervision useless if political influence persists

No form of supervision will be able to ensure a sound banking sector unless there is a change in the country's politics and an end to political influence over banks, said Bangladesh Bank Governor Ahsan H Mansur yesterday.

"If we cannot bring any change to our political ideology and governance structure, then even risk-based supervision will not be able to prevent irregularities and corruption in the banking sector," he said.

Mansur was addressing a press conference at the Bangladesh Bank headquarters marking the introduction of Risk-Based Supervision (RBS) for all scheduled banks.

This supervisory approach enables regulatory bodies to focus their attention and resources on financial institutions based on the level of risk they pose to the overall financial system.

This method prioritises areas with the highest potential for causing instability, rather than applying a uniform supervisory model for all banks.

The RBS aims to enhance the effectiveness of supervision by identifying and addressing potential vulnerabilities proactively.

The banking regulator is scheduled to implement the RBS from January 1 next year to ensure a sound, resilient, and future-ready financial system.

"If we cannot strengthen our accounting classifications and improve their quality, then the inspection team will also not be able to perform effectively in terms of quality," said Mansur.

The BB governor said their expectation or goal was to ensure that the banking sector becomes well-organised, like in other countries, so that it can play a strong and constructive role in the economy.

While discussing the issue of bank mergers, he said the asset quality of six banks in the country had been reviewed.

"Discussions have been held regarding the merger of five of these banks. Before proceeding with the merger, separate discussions will be held with each bank," he said.

"If any bank can present a valid reason against the merger, the matter will be reviewed. However, it seems unlikely that these banks will be able to do so," he added.

"We are also considering how much autonomy can be given to Bangladesh Bank, and discussions are ongoing with the government on this matter," Mansur said in response to a journalist's question.

"…because the autonomy of the central bank is an important issue that can help resist political influence and ensure discipline in the banking sector," he said.

He said their expectation was for an end to political interference that hindered the activities of the central bank.

"The central bank should be allowed to carry out its duties impartially in the future," said Mansur.

"To ensure this, certain legal measures and regulations must be upheld, and this must be established as a standard. It is the politicians who must take the lead in doing so," he said.

Regarding a lack of confidence among depositors in the banking sector, the BB governor said the central bank has provided liquidity support to protect small depositors.

"This was a significant form of assistance, and it has been used solely to safeguard the interests of small depositors," he said, adding that it enabled Islami Bank Bangladesh Limited to make a turnaround and return depositors' funds.

"Of course, not all banks will be able to do this, nor is it possible for everyone. There are some banks where, for example, 98 percent of their capital might be gone—in such cases, turning them around will not be possible," he said.

"In such situations, we must look for solutions through government intervention or nationalisation," said Mansur, adding that Bangladesh Bank reiterates its assurance that depositors' money is safe.

"Depositors should not lose confidence. We just ask for a little more time," he said.

Speaking on amendments to the Bank Company Act, the BB governor said one of their proposals was for independent directors to make up at least 50 percent of a bank's board of directors.

"If implemented in this way, the independent directors will have to be selected from a panel formed by Bangladesh Bank in consultation with others, comprising representatives from various professions," he said.

Regarding inflationary pressure, he said he has hopes that it will gradually decrease.

"It would be better if it does. That is the expectation. However, let me say one thing: there is a sense of stability in the market," he said.

"But there's one area that makes me uncomfortable—why is the price of rice still high?" he asked.

Apart from that, almost everything else is on a downward trend, he added.