Several banks are clinically dead: CPD

Several banks in Bangladesh are clinically dead but are being kept alive through bailouts, said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).

Banks on the verge of collapse should be allowed to shut down, Fahmida said while presenting a paper at a media briefing, titled "Bringing discipline back to the banking sector immediately", organised by the think-tank at its office in the capital yesterday.

The CPD organised the briefing just a few days after an interim government was sworn in following the fall of Sheikh Hasina-led Awami League government in the face of a mass uprising on August 5.

Fahmida said some third and fourth-generation banks that were awarded licences during the Awami League's 15 years in power are now ailing.

Read more

Tk 92,261 crore embezzled in 24 banking scams in last 15 years: CPD

"Additionally, several previously good banks have experienced an unfortunate decline in their performance after hostile takeovers by crony capitalists," she said.

Several previously good banks have experienced an unfortunate decline in their performance after hostile takeovers by crony capitalists

— Fahmida Khatun, Executive director of CPD

For example, Islami Bank Bangladesh was debilitated after S Alam Group took over the bank and took out about Tk 30,000 crore in loans.

Similarly, state-run Janata Bank lent Tk 10,000 crore to Anontex Group, violating the single borrower exposure limit.

"If a single borrower gets so much money, then what will other clients get?" she questioned.

These ailing banks are being kept alive by injecting public money, Fahmida said, adding that it would be better to let such lenders die.

The CPD also said that around Tk 92,261 crore was embezzled through 24 major banking scams between 2008 and 2023.

The amount is equivalent to 12 percent of Bangladesh's national budget for FY24, or about 2 percent of the country's gross domestic product for FY23.

According to the brief, the banking sector, a vital pillar of the economy, is suffering from vulnerability manifested through high loan defaults. It added that the previous government regrettably did not keep its commitments to safeguard the banking sector.

Speaking about the autonomy of the central bank, Fahmida said the Bangladesh Bank does not make independent decisions about its operations or the formation and implementation of the monetary policy.

She said the autonomy of the central bank should be upheld in line with the Bangladesh Bank Amendment Bill 2003, adding that the Financial Institutions Division (FID) of the finance ministry should be scrapped to strengthen the autonomy of the central bank.

The CPD added that the mandate of the FID directly contradicts the Bangladesh Bank Order, 1972 since it allows the FID to exercise its authority in the governance of the central bank.

According to the Bangladesh Bank (Amendment) Act, 2003, any new governor or deputy governor should not be a current or former government official. But this rule is not followed in practice in the country, the brief added.

In the last 15 years, the governors of the Bangladesh Bank helped vested quarters, either by ignoring existing rules or changing the laws to favour them, Fahmida said, adding that such instances should be investigated and governors concerned should be held accountable.

Questions were also raised about why the central bank governor went into hiding after the fall of the government.

CPD Distinguished Fellow Prof Mustafizur Rahman said all countries have central banks, but none have a separate agency to control the central bank.

"We must give autonomy to the central bank. If it is accountable to the parliament, then there is no need for a separate organisation like the FID," he added.

The CPD recommended a goal-specific, time-bound, transparent, unbiased, inclusive and independent banking commission be formed to bring transparency to the sector. It also recommended strengthening the Bangladesh Financial Intelligence Unit to combat money laundering.

CPD Research Director Khondaker Golam Moazzem said separate commissions similar to the banking commission can be formed for the capital market and insurance sector.