2 more pvt banks in the offing

Bangladesh Bank is completing the primary process for issuing licences to two more private banks, which analysts claimed would be detrimental to the banking industry and the economy as a whole.

The finance ministry on November 15 sent a letter to the central bank asking it to take measures required to issue the licences, sources said.

In September, the Bangladesh Bank had turned down the licence requests of the two banks on the ground that financial health of many banks, especially the nine newest, were deteriorating and that there was no need for new banks.

The BB had apprised Finance Minister AMA Muhith its decision in a letter that month but the minister asked the central bank to scrutinise the proposals. The Daily Star has obtained a copy of the BB letter.

The central bank changed its decision after the government high-ups instructed the regulator to approve the two new banks, sources said.

One of the proposed banks is Bengal Bank, initiated by Bengal Group of Industries, a local manufacturer of plastic products. Morshed Alam, a ruling party lawmaker, is the chairman of the group.

The other bank is People's Islami Bank, proposed by MA Kashem, an Awami League leader living in the US.

According to the BB officials, the paid-up capital of these banks would be Tk 400 crore, an amount each of the nine newest banks had paid in 2013.

The Bangladesh Bank in its letter to the finance minister had said that the financial health of many banks would have deteriorated further had the central bank not extended different policy support.

“We have been forced to change our decision amid pressure from different corners, including government high-ups. The central bank is now completing the primary process with an aim to offer licences to the sponsors of the new banks,” a BB official told The Daily Star yesterday.

Analysts have come down heavily on the government move.

Ahsan H Mansur, executive director of the Policy Research Institute and a former top official of International Monetary Fund, said the health of the banking sector have deteriorated further, even from that of 2013.

“The government should learn from the past. Allowing any new bank will not bring any good to the financial sector,” he said.

He claimed that the BB had issued licences to nine banks considering the political backing of the owners and despite severe criticisms from different quarters.

The nine banks had adopted an aggressive lending strategy in a competitive market, which deteriorated their asset quality, he noted.

He said 57 banks in Bangladesh was too many and that weaker banks should merge with stronger ones.

Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said the government and the BB should focus on reforms and establish discipline in the banking sector, rather than allowing more banks.

“More banks will prove to be detrimental to the banking sector and the overall economy as well,” he said.

Vice-Chairman Md Jashim Uddin of Bengal Group was, however, hopeful of getting the banking licence and the business potential.

“The country's businesses are expanding. So, setting up of more banks will help the businesses,” he told The Daily Star recently.

He said one or two new banks were not meeting expectations but the other ones were running their operations properly.   

Approached by The Daily Star, Bangladesh Bank Deputy Governor SK Sur Chowdhury declined to comment on the matter of new banks.