Jan 16
Govt Again Awarding New Banking Licences Ahead Of General Election PDF Print E-mail

By Apu Ahmed

 

The government is going to provide licences for establishing three new banks after five years it had awarded nine licences to businessmen for establishment private commercial banks, some of which are in pathetic condition because of scams. Seasoned bankers who had protested at the decision of awarding licences to the banks in 2013 once again raised their voices with the latest move. They warned that entry of new banks would jeopardize the banking system further since two out of nine new banks have posed great risks to the banking system.

 

Warning Bell Ignored

 

But it seemed that the government would pay little attention to the warning bell rung by the experts for the interest of the banking sector.  The government is seemingly oblivious about the fragile condition of the banking sector, now passing through a transitory period because of series of scandals in both state-owned and private commercial banks. There are many reasons, pointed out by the experts, in support of their views against the establishment of new banks. Experts observed that entry of new banks would be illogical and disastrous. However, the government is determined to give new banking linceses. One of the main reasons learned from interviewing policy makers and bankers is that the government has to appease certain quarters ahead of the next general election.

 

Illogical

 

Muhith who announced during public function on November 28 that awarding new banking lincences for establishing was taken. Asked the logic for awarding new banking licences in the backdrop of struggling new banks Muhith said more banks are needed to cover many ‘unbanked’ parts of the country.  He added that those banks which are struggling would be merged with others. Former Bangladesh Bank governor Salehuddin Ahmed pointed out that merging troubled bank without solving their problems would not bring any good for the banking sector. He said existing 57 banks are good enough to cover the ‘unbanked’ areas with diversifying their products, agent banks and digital devises. He noted that the entry of new banks would be disastrous for the banking sector.

 

Beeline for Licences

 

More and more businessmen are showing keen interest to open new commercial banks in the country although the country’s banking sector is under serious stress because of financial problems like non-performing loans worth Tk 80,307 crores, 10.67 per cent of the total loan as of September 30. The amount should have been Tk 1,25,307 crores had not the BB allowed to write off Tk 45,000 crores. BB officials said more than 80 applications are pressing the central bank for bank company licences at a time when majority of the banks were struggling to survive. Omen from the experts in previous occasion became more than true as a Bangladesh Bank report placed before the parliamentary committee on ministry of finance on October 29 this year highlighting massive corruptions taken place in Farmers Banks and NRB Commercial Bank, the two out of nine new banks. Within three years in operation the BB report cautioned that the Farmers Bank Limited, owned by former minister Mohiuddin Khan Alamgir, was hit by irregularities, posed serious 'risk' for the financial sector. The Farmers Bank has created 'systematic risk' for Bangladesh's entire financial sector because of its irregularities. NRB Commercial Bank is not far behind from the Farmers Banks as far as corruptions and irregularities concerned. BB was forced to remove’s its managing director Dewan Mujibur Rahman. But on December 8, the High Court Division stayed for three months removal of the MD. BB directed removing the MD after finding ‘proof’ of his involvement with multiple loan scams.

 

Looting Depositors Savings

 

Banking sector experts pointed out a dozen of reasons for growing demand for banks. Businessmen are usually interested in owning banks to ensure easy access to money and ensure the flow of fund to their other businesses, said Yasin Ali, a supernumerary professor of Bangladesh Institute of Bank Management. But as the way bad loan is rising he feared that the dishonest bank owners want to own banks to loot public money. Owning a private bank was once a prestigious issue for achieving higher social status, but nowadays it became a good source amassing public wealth due to weak monitoring by the BB against the backdrop growing political pressure. The monitoring lapses encourage most of the banks hiding the real amount of bad loans and indulge in window dressing of bank’s data. Now it becomes a usual phenomenon in many banks to loot the depositors’ money.

 

Violations Galore

 

The Bank Company Act 1991 (Amended in 2013) stipulates that a director cannot take loans worth more than 50 per cent of his stake in the bank. But there are instances that some directors sidestepped the rule by taking loans from other banks through mutual understanding. A bank needs to have a paid-up capital of Tk 400 crores. Once in operation, the banks get control of thousands of crores of taka belonging to depositors and shareholders. Bank owners, manipulating the existing regulatory system, get access to the bank money and deal with it without any risk of their personal losses. Lack of exit policy for banks in Bangladesh allows businessmen to misuse public money by opening banks, said BIBM Director General Toufic Ahmad Choudhury.

 

Govt Hardly Bothered

 

In terms of financial market development, Bangladesh's global ranking fell sharply in recent years - from 66th in 2010-11 to 90th in 2015-16 (World Economic Forum, 2010 & 2015). Availability and affordability of financial services, ease of access to credit, soundness of vision and mission, operational efficiency, standards of management and good governance, regulatory measures guiding the financial sector, state of the securities market - all these indicators demonstrate a deteriorating trend in terms of performance. But it seemed that the falling indicators were hardly making any worry for the policy makers of the present government that is now busy to ensure support of the vested and pressure groups before the crucial general election. It should be noted that the present government has awarded previous none banks before the general election held in January in 2014, boycotted by major political parties.