Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Some developments are surely brewing in the country's banking sector, as the rot has gone too deep to ignore anymore.
Loan scams and plundering of bank money are among major issues that feature in public discussions. A few policymakers, who until recently have consciously avoided any mention of unwanted developments in the banking industry, are finding it difficult to hold back their deep frustration.
Banks and business enterprises are complementary pairs. They need each other for survival. Their relations, however, turn sour over unwanted developments involving transactions. In the Bangladesh case, default on large loan repayments and disbursement of large loans under questionable circumstances have brought many banks to their knees. The use of political connections and government intervention to secure large loans or delay in repayments has been a common affair.
Business leaders, for understandable reasons, have so far skipped comments on default loans and loan scams. But that situation does not exist anymore, it seems. Some top businessmen, who have been clean as far as their transactions with banks are concerned, are not ready to accept the stigma of loan defaulter or bank money plunderer. They have decided to vent their grievance on the issue in public. At an open discussion, organised by the Dhaka Chamber of Commerce and Industry (DCCI) last week in Dhaka, they sought actions against people who have plundered bank funds worth billions of taka and transferred the same abroad.
Economists have been pointing out the unsavoury developments in the banking sector for many years. None has paid any heed to it. The regulator concerned, allegedly, instead of taking corrective measures decided to be indulgent to wrongdoers. The government also, in many cases, patronised the schemers to withhold loan repayments. Together they have undone many good steps taken in the recent past to streamline the banking sector.
Ignoring strong opposition from various quarters, the central bank coming under undue influence has given licences to open new banks one after another. The obvious has happened. Some new banks are in deep trouble. The situation is critical in the non-banking financial institutions and the state-owned banks.
Revelations of scams and large-scale loan default notwithstanding, an air of mindless indifference to the problem was noticed everywhere. With the entry of the International Monetary Fund (IMF) following the deep dollar crisis in the early part of last year, the situation started changing. The conditions tagged with the Fund's bailout loan include reforms of the banking sector. The Bank Company Act, in accordance with IMF recipe, has been amended recently to reduce the extent of family control over private banks. But the changes, according to many, are cosmetic.
What is being loudly pronounced now is the issue of the merger of weak banks with their stronger counterparts. The central bank has delineated an action plan for banks to improve their financial health by December next. Failure to do so will make them candidates for 'forced' mergers with strong banks.
But the question of merger is a tricky one under the prevailing conditions. In developed countries, merger and acquisition is a natural process. Banks and other business enterprises do it on the basis of their calculations and none forces them to go for it. The voluntary merger of banks here seems highly unlikely for practical reasons. Lots of groundwork and third-party intervention will be necessary.
What is, however, intriguing is the total indifference of the relevant authorities to employ asset management companies (AMCs) to recover default loans. The use of AMCs or loan recovery agents is a common practice in many countries. Even such a recovery mechanism would hardly work in the case of large and influential borrowers under the prevailing circumstances here.
Merger bid, it seems, is aimed at rescuing some sinking banks. How far it will go is difficult to say right at this moment. But not much is said about a couple of key reasons behind the ongoing banking sector instability --- the presence of a high volume of non-performing loans (NPLs) and large loan scams. Unless and until these issues are addressed, the situation in the banking sector, instead of improving, will go the other way around.