BB autonomy, banking reform legislation before long

Central bank autonomy and banking-reform bills of legislation before long as the finance adviser pledges a push within the interim government tenure as experts plead for healing chronic banking ills.

Dr Salehuddin Ahmed said at a meet Thursday that the interim government would make a final push to enact the much-hyped reforms in the banking sector, including amendments to the Bank Company Act and the Bangladesh Bank Order, to strengthen the central bank's autonomy.

Speaking at a Financial Express roundtable on banking-sector reforms, the finance adviser of the interim government said the government had only about 20 days left in office, making it difficult to complete both reforms within its remaining time.

If the acts (ordinances) cannot be passed, Dr Ahmed said, the government would leave detailed "notes" for the next elected government to implement the key financial acts.

"At best, we will try to pass at least one of the two," the finance adviser told his audience, citing time constraints.

Bangladesh Bank governor Dr Ahsan H. Mansur, who attended the event as a special guest, pressed for both bills to be enacted swiftly, arguing that enhanced central bank autonomy is essential to restoring discipline, supervision and credibility in a financial system weakened by loan scams, governance failures and political interference.

The difference of views led to a brief but pointed public exchange between the key positions of the government during the later part of the programme.

Dr Ahmed pushed back against the draft autonomy bill, saying it lacked adequate safeguards to ensure accountability.

"You need to put accountability clearly into the bill," he said, adding that full autonomy without proper checks could create complications.

He also questioned aspects of the proposed governance structure, including the hierarchy and selection criteria for senior central-bank positions, and asked whether a central-bank governor should hold ministerial rank. This is echoed by Dr Mansur.

The finance adviser said the interim government had already enacted many laws through ordinances, including two just approved Thursday.

The finance adviser vented concerns over corporate-governance failures, saying that it is "hardly possible to ensure good governance when family members simultaneously hold top executive roles in the same company, one for managing director and daughter as chief financial officer".

Governor Dr Mansur, meanwhile, said the interim government had sought to maintain a neutral and depoliticised environment in the industrial sector.

"There was no colour, no politicisation," he said.

He defended allowing certain companies, including S Alam Power, to open letters of credit, arguing that blocking imports would have jeopardised investments worth about $2.5 billion and disrupted power generation.

He mentioned that one Beximco plant, Beximco Textiles, remained only non-operational and all others belonging to Beximco are in operations, including DTH (direct to home) Akash.

The chief executive of the central bank said policy support had been extended to businesses that were restricted during the past 15 years, whether due to political factors, economic cycles or the Covid-19 pandemic.

Around 1,500 companies have so far received such support, with more cases under review. He refuted an allegation of one speaker who argued that such facility would make the existing companies uncompetitive.

On asset recovery, Dr Mansur said the government was pursuing a systematic approach, with assistance from international partners, although capacity constraints within domestic institutions remained a challenge.

He estimated that recoveries amounting to about Tk 2.0 billion might be done through civil suits.

Mahbubur Rahman, President of the International Chamber of Commerce (ICC) Bangladesh, has strongly criticised the practice of providing artificial life support to failing banks, warning that such measures will not resolve the banking sector crisis.

Mr Rahman said bankruptcy laws should be allowed to run their natural course instead of using taxpayer money to prop up insolvent institutions.

He questioned the effectiveness of the independent director system, calling it "dependent rather than independent." Rahman cited cases where independent directors remained silent despite witnessing corporate wrongdoing.

The business leader criticised the central bank's Tk 225 billion liquidity support to six troubled banks in November 2024, calling it unsustainable.

He also raised concerns about the proposed merger of five Shariah-based banks, questioning whether retired bureaucrats have the expertise to run the Tk 200 billion entity.

Rahman proposed consolidating state-owned banks into just two institutions and urged the finance adviser to legally enshrine central bank autonomy before leaving office.

He called for strict action against willful defaulters while supporting genuine businesses in temporary distress.

The Financial Express Editor Shamsul Huq Zahid presided over the discussion. He said the banking sector being in a dire state remains a strong candidate for undergoing massive reforms.

“We often talk about reforms when things are not right or not moving in the right direction. However, the general propensity is to avoid reforms, because they are, in most cases, painful,” he said.

The Financial Express editor said different measures of the regulator during the present interim government have helped restore depositors’ confidence in the financial sector but one particular problem persists.

“The size of the non-performing loans is still huge. Nearly one-third of the total outstanding loans in the banking sector are classified. The central bank had initially taken a tough stance against the large loan defaulters. It, however, lately has softened its approach to help many large manufacturing units, which belong to the cronies of the fascist regime, for the sake of maintaining their uninterrupted operation and, thus, save thousands of jobs. Truly, this has emerged as a dilemma for the Bangladesh Bank,” he added.

Managing director and chief executive officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman said the government revenue- mobilisation drives need to be intensified further to lessen pressure on banks as tax-to-GDP ratio dropped to 7.0 per cent.

At the same time, the seasoned banker mentioned the government moves to upgrade salary structure of the public servants which would require an additional Tk 1.0 trillion in the coming days.

"If the revenue-netting drives are not significantly enhanced, it would mount further pressure on banks in the post-election regime when private-sector credit demand is expected to increase," he told the roundtable.

Chairman of Agrani Bank PLC Syed Abu Naser Bukhtear Ahmed said political actors are the prime responsible behind the growing buildup of classified loans in banks.

The experienced banker said the politically-affiliated persons influenced the board members and board of directors passed it on to the executives.

Chairman of Premier Bank Dr Arifur Rahman paints a rosy picture of Bangladesh's economic front, despite some headwinds. "People say the economy is not good but the economy keeps thriving despite various barriers," said the private-sector bank's boss.

He was stressing the importance on frequent interbank communication through which they can come up with good suggestions for the policymakers.

Chairman of BASIC Bank PLC Helal Ahmed Chowdhury said the commercial banks alone should not be held responsible for the debacle in the banks.

"The role of the regulators, audit firms and credit rating agencies should seriously be reviewed," he argues.

Chief executive officer of Standard Chartered Bank Bangladesh Naser Ezaz Bijoy said independence of the banking regulator is absolutely critical but there is a risk of exercising excessive power by the central bank.

"The accountability needs to be ensured so that commercial banks, clients and anyone will not get abused by the power under the full autonomy," he alerts.

Managing director and chief executive officer of Pubali Bank PLC Mohammad Ali said the bank has a culture of not approving loans by the executive committee.

But there are banks where major portions of the loans are approved by the executive committee and it leads to liquidity-related crisis, according to him.

Managing director of Citizens Bank PLC Mr. Alamgir Hossain said the board should be separated from the task of approving loan.

He said the activities of independent directors on the board need to be reviewed.

Managing director of Bran Asia PLC Sohail R K Hussain said the governance and checks and balances process in the sector all completely failed in the last 10 years.

"We need to look at whether the solutions being proposed here are adequate and aligned with the international practices," he added.

A.K. Azad, Chairman of Ha-Meem Group said the lifetime tenure of directors on the boards of private banks is eroding good governance in the country's banking sector.

He said bank directors are custodians of public deposits and should not remain in their positions indefinitely. "Why should a director remain in office for more than three years?" he questioned.

Referring to long-standing discussions on the formation of a banking commission, Azad urged the finance adviser to place the proposal before the cabinet before the current government's tenure ends.

"We hear the proposal is with you, but it is not being forwarded. At least we would be reassured that reform initiatives were taken," he said.

Azad also stressed that without strengthening the regulatory authority and capacity of Bangladesh Bank, the banking sector would not recover. He noted that even the limited autonomy once enjoyed by the central bank has now become fragile.

The crisis in the banking sector is not confined to state-owned banks alone, he said, citing the condition of private banks such as National Bank and Exim Bank. "Mergers are being carried out, but they will not solve the problem," he added.

Azad acknowledged that the current governor and finance adviser have pulled the economy back from the brink over the past one and a half years, but urged them to complete key banking sector reforms before leaving office.

BKMEA President Mohammad Hatem has called on policymakers and the central bank to address what he described as worsening bottlenecks in export financing and payment recovery.

Deferred payment structures allow buyers to extract excessive advantages and contribute to large sums of export proceeds remaining unpaid, he said.

The BKMEA president added that Bangladesh Bank should consider stopping or limiting exports under deferred payment terms, even if that goes against some interests.

He praised the reform initiative and expressed confidence that it could deliver results if completed within the current timeframe.

President of the Dhaka Chamber of Commerce and Industry (DCCI) Taskeen Ahmed on Wednesday urged a balanced approach to banking sector reforms, warning that excessive tightening could deepen economic slowdown and hurt employment, particularly in the SME sector.

He said a small fraction of borrowers were responsible for a disproportionately large share of non-performing loans (NPLs).

Citing data, he noted that less than 2.0 per cent of borrowers accounted for over 40 per cent of defaulted loans, questioning whether private banks alone should bear the blame.

He stressed that regulatory accountability, especially of the Bangladesh Bank, must be part of reform efforts.

Mr Ahmed also highlighted the lack of reliable data on SME closures and job losses, warning that poorly sequenced reforms could shrink businesses and worsen poverty.

Dr. Shah Md. Ahsan Habib, Professor at BIBM, delivered the keynote presentation at the event. He stressed the need for appointing the right people to the right roles to lead reforms, institutions, and key initiatives across the financial sector.

Md. Ali Hossain Prodhania, Chairman of NRBC Bank PLC, and Rizwan Dawood Shams, Managing Director of IPDC Finance PLC, spoke as discussants.

Among others, Ali Reza Iftekhar, Managing Director of Eastern Bank PLC; Mir Nasir Hossain, former President of FBCCI; and M. Fazlur Rahman, Chairman of Janata Bank PLC, were present at the event, moderated by Shiabur Rahman, Head of Online and Multimedia of The Financial Express.

The event was sponsored by Mutual Trust Bank PLC as the title sponsor, while BRAC Bank PLC and NCC Bank PLC were gold sponsors. Trust Bank PLC, Shahjalal Islami Bank PLC, Eastern Bank PLC, and Mercantile Bank PLC acted as co-sponsors.

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