Why BB Order and Bank Company Act require review

Responsible for much of the country's economic malaise are some banks that failed not only to perform their stated duties but also bungled banking provisions in order to allow wide-scale misappropriation of funds. Some directors on the boards of a few banks took loans of fabulous amounts from each other's bank only to siphon those off. Sanctioning of similar loans to industries and businesses with dubious records was yet another devious way of draining out depositors' money from a number of banks. All this explains why Dr Ahsan H Mansur, governor of the Bangladesh Bank (BB), while unveiling the half-yearly monetary policy statement (MPS), has felt the need for updating and modernising the BB Order and Bank Company Act to make those compatible with the global standard practices. The Bank Company Act, 1991 was last revised in 2023, the year when the unholy alliance of actors within the banking sector and outside connected to top political power bled a number of banks white, precipitating not only liquidity crisis but also the overall economic decline.

The BB governor has raised some pertinent questions about the current banking provisions as stipulated in the Bank Company Act. For example, as many as 20 directors are on the board of a bank and the tenure of a director ranges up to 12 years. This is irrational, according to him. Many will subscribe to his view on this issue. Moreover, the appointment of directors, including managing directors remained mostly a family affair. So banks in the country have struggled to emerge as genuine financial institutes. Instead of becoming the custodian of depositors' money, the organisers of some private banks and one or two public limited banks virtually turned into swindlers of a kind. Had there been checks and balances in the banking operation, particularly in case of sanctioning of big amount of credit, loan default and nonperforming loans (NPL) could not accumulate to the staggering amount those have done by now. Even money laundering could be kept to the minimum level.

It is against such a bleak perspective, the BB governor's call for a review of the banking regulations including, maybe, the organogram of the board deserves attention. Banks do not generate resources or products but through them monetary transactions are made both at personal, business and even state levels. There lies the importance of streamlining those for responsible, transparent and accountable financial operations. The BB order as such has no problem but to make it more comprehensive and dynamic, so that it can deal with the envisaged changes in the Bank Company Act, its parameter of jurisdiction may be expanded or curtailed if necessary.

Last but not least, the BB governor personally favours 50 per cent of directors on the board of a bank to be independent ones. This is quite reasonable provided that his proposal for creation of a pool of independent directors with integrity and commendable track records materialises. If the independent directors oppose illegal and irrational loan sanction, the banking scam of the order Bangladesh became a witness to will not happen again. Even if one or two of them demonstrate enough guts to make their opposition known, the evil nexus of bank officials, directors, business sharks and unclean political actors can be resisted. Let the required changes be brought about in the system of banking operation.