Each weak bank needs at least Tk 10 billion as liquidity support: Mintoo

Newly-appointed chairman of National Bank Limited (NBL) Abdul Awal Mintoo has said merely restructuring the board of directors of troubled banks after dissolving the previous ones will not be enough to resolve the crisis in the banking sector.

Rather, Bangladesh Bank has to arrange liquidity support to the tune of at least Tk 10.0 billion for each weak bank if it is serious about keeping them in operation with depositors’ trust restored, Mintoo said.

“In 1998, the United States government provided $2 trillion in liquidity support for their banking sector to overcome a crisis during that period,” Mintoo said. “The central bank of Bangladesh should follow that example and arrange liquidity support for the weak banks.”

The reference is to the US government’s Troubled Asset Relief Program, or TARP, under which $700 billion was authorised to bail out banks at the onset of the financial crisis in 2008.

Mintoo, also the CEO of Multimode Group, said: “You have to understand the practical situation, all the sectors including banks stand on false information during the immediate past government. Banks’ money was looted with the coordination and arrangement of the Bangladesh Bank. So now why would the central bank not do everything to financially revive these banks?”

Without instant liquidity support, there is no way to regain the trust of depositors in the banks where the boards have been restructured. The loan guarantee from the central bank is not enough, as other banks also know the financial health of these banks, he said.

“Bangladesh Bank will have to arrange a liquidity support package for these weak banks without delay. Because even a good decision, if delayed, will lead to another crisis and undermine the good that may have come out of that decision,” Mintoo opined.

He is also critical of the makeup of the central bank’s board following the induction of some new members. In Mintoo’s eyes, the share of academics is disproportionately high, while experienced bankers are lacking. He says this is causing the delays in decision-making.

“The central bank’s wait-and-see approach is exacerbating problems that can be nipped in the bud with decisive action,” said Mintoo, a former president of the Bangladesh Association of Banks (BAB), as well as the Federation of Bangladesh Chamber of Commerce and Industries (FBCCI).