Regulators responsible for the ailing banks
For years, experts have been warning that the health of Bangladesh's banking sector has been deteriorating. Hard data such as those on the prevalence of defaulted loans have also been indicating the same. A recent Bangladesh Bank report is the latest to reaffirm this worrying trend. It says that between December 2020 and June 2023, 38 banks have seen deterioration with nine being in the "red" zone, meaning a "fragile" financial health. These banks, along with 29 others that were in the "yellow" zone, are now in need of supervisory attention.
According to experts, some banks have become very weak due to loan irregularities and scams. They alleged that some people have taken loans with no intention of paying them back and laundered the funds abroad. Issues plaguing this vital sector naturally spill over and affect the entire economy and business environment. Business leaders, therefore, have rightly demanded that wilful loan defaulters be identified, publicly shamed, and punished—something we have also called for in this column. Full disclosure is vital for clarity at every subsequent stage. Interestingly, while some former finance ministers had hinted that they would make their identities public, some notorious names were found to be absent in the disclosed lists, raising questions not only about the sincerity of the effort but also their accountability.
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That the situation has not improved despite multiple government promises to address these issues—but has, in fact, worsened over the years—is the regulators' fault. The regulators have time and again dealt with wilful defaulters with kid gloves, bending their own rules to accommodate the interests of influential quarters. They have frequently overlooked irregularities and outright corruption in the sector giving rise to the issue of moral hazard—where people have been encouraged to continue resorting to irregularities in the absence of any punitive/corrective action by the regulators.
Pointing to the central bank's new roadmap for banking reform, the authorities are again promising to reign in defaulted loans. We remain sceptical, however. The issue, as always, is with the implementation of whatever strategy they adopt. Previously, we have seen regulators repeatedly ignore their own rules in the face of political pressure. So, to really bring down default loans and improve the health of our banks, the authorities must not only strictly implement the new roadmap, but also ensure compliance with all banking rules.
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