Respected Chair and distinguished participants

 

Respected Chair and distinguished participants

Thanks to the organizers for arranging this webinar on political Economy and Governance of private sector banks of Bangladesh. SANEM study reveals a few aspects of private banks in relation to political environment. The study presents a comparison of Bangladeshi banks with banks of neighboring countries on measurable aspects. Country composition of bank should be kept in view, because this study concentrates on private banks. For example, Private Banks dominate over government banks in Bangladesh, while in India; government banks are highly dominant over private banks.

At present, 61 banks operate in Bangladesh. In recent years, two banks almost failed because of corruption among owners. One has changed its name to forget the past and the other is getting govt. support. Five more private banks are not is good shape. This is because, license of banks are issued on political considerations. Law empowers Bangladesh Bank to issue license for new banks. Practically, the government forces Bangladesh Bank to select new banks on political consideration.

Number of Banks in a country depends on National Income, Savings rate and distribution of population. These are all ignored in Bangladesh. Govt. is bent upon floating new banks in large numbers. Official view is that new banks will bring in new customers in the unbanked areas. This happens other way. New banks do not operate in unbanked areas. They concentrate on highly banked city areas, creating ill-competition giving raise to corruption and inefficiency.

The study brings in an important finding on central bank, which is suffering from institutional weakness and subsequent inefficiency. This is apparent on many counts. Bangladesh bank often remains a passive observer of corruption and gross irregularities in banks. Such inaction gradually results in loss of public money and decaying health of banks. It is interesting to note that Bangladesh Bank Act and Banking Company Act provide sufficient power and authorities to Bangladesh Bank. Enacting law does not ensure obeying law. Because, implementation of  law requires proper environment and skills, now absent in the banking sector of Bangladesh.

Let us cite an example. A private bank had five family members in the board of Directors. At that time, law allowed only two family members. Bangladesh bank asked explanation from the bank, advising removal of three directors immediately. Bank owner family was very close to govt. high-ups. The Bank did not reply to Bangladesh Bank letter. Instead, they pleaded with the govt. to change the Law. Surprisingly, govt. changed the law to accommodate four directors from one family. Even now, this bank has fire directors from same family, violating the amended law. Bangladesh Bank does not dare to go for action and govt’s political consideration ignores Law.

The study recommends for empowering Bangladesh Bank. But how? We can put forward a few suggestions for record purpose and public awareness. Bangladesh Bank started losing its authority from 2009 when new separate Banking department was created under Ministry of Finance. As a consequence of parallel administration, Bangladesh Bank gradually succumbed to pressure and govt’s Banking Dept. gained authority. Bangladesh Bank became subservient and lost autonomy. To restore autonomy of Bangladesh Bank, Banking department of ministry of Finance should be abolished and Bangladesh Bank personnel should be retrained to enable them to use authority.    

Private Banks are facing serious interference from the owners, because of their political of affiliation and personal consideration. According to Bangladesh Bank instructions, Board of Directors should decide polities and guidelines. Chief Executive and other officers will act professionally. Surprisingly, Board decides on loan proposals and administrative issues. Bangladesh Bank remains silent because bank-owners are powerful. Situation was not so bad during last century. During 1998-99, thirty six directors of private Banks were removed and Board of one bank was dislodged by Bangladesh Bank. Later on the same Bangladesh Bank is behaving differently particularly after creation of banking department in the Ministry of Finance.

Half a dozen bank owners’ families are powerful because of their linkage with the government. They appear to be above Law. They manage to change law, can bypass law and disregard law. Bangladesh Bank remains an observer only. This requires change of understanding of political stalwarts of the country. Peoples awareness programmers should continue.