[🇧🇩] Banking System in Bangladesh

[Saif]

Six state banks asked to cancel contractual appointments of MDs

The Financial Institutions Division (FID) of the finance ministry has recommended that the boards of directors of six state-run banks cancel the contractual appointment of their managing directors and CEOs..The six state-run banks are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BAS

www.thedailystar.net

Six state banks asked to cancel contractual appointments of MDs

The Financial Institutions Division (FID) of the finance ministry has recommended that the boards of directors of six state-run banks cancel the contractual appointments of their managing directors and CEOs.

The six state-run banks are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BASIC Bank and Bangladesh Development Bank.

The FID also sent six separate letters to the chairmen of the boards of those banks.

The board of directors of those six lenders were also asked to take legal action regarding the cancellation of the contracts as per The Bank Companies Act.

The FID issued the letters as per government recommendations.

Mohammad Muslim Chowdhury, chairman of Sonali Bank, Professor Abul Hashem, chairman of BASIC Bank, and Md Nazrul Huda, chairman of Rupali Bank, confirmed to The Daily Star that they had received letters from the FID.

The Daily Star obtained a copy of the letter sent to the chairman of Janata Bank in this regard.

Among the six CEOs and MDs, Md Abdul Jabbar was promoted from deputy managing director to managing director of Janata Bank in April of 2023.

Similarly, Mohammad Jahangir was appointed as MD of Rupali Bank in August of 2022 following his tenure as deputy managing director of the bank.

Meanwhile, Md Afzal Karim joined Sonali Bank as MD in August of 2022 after serving as managing director of the Bangladesh House Building Finance Corporation.

Md Murshedul Kabir was appointed as managing director of Agrani Bank in August 2022. He had previously served as a deputy managing director of Sonali Bank.

Md Anisur Rahman joined as MD of BASIC Bank in April 2021 after serving as Agrani Bank's deputy managing director.

Lastly, Md Habibur Rahman Gazi was appointed as managing director of Bangladesh Development Bank in November 2022 after serving as deputy managing director at Agrani Bank.​

 

[Saif]

Strategic reform for resilient banking sector

BANGLADESH stands at a critical crossroads, grappling with formidable economic challenges. Soaring inflation, depleting foreign reserves and sluggish growth have eroded public confidence. Years of mismanagement and unchecked corruption in the banking sector have deepened the crisis. However...

www.newagebd.net

Strategic reform for resilient banking sector
Amir Hossain 20 September, 2024, 00:00

BANGLADESH stands at a critical crossroads, grappling with formidable economic challenges. Soaring inflation, depleting foreign reserves and sluggish growth have eroded public confidence. Years of mismanagement and unchecked corruption in the banking sector have deepened the crisis. However, with the appointment of Dr Ahsan H Mansur as governor of Bangladesh Bank, the nation is embarking on a transformative journey of reform aimed at restoring trust and stabilising the financial system.

Dr Mansur has unveiled an ambitious plan to address systemic issues through a comprehensive “white paper.” This document will provide a transparent analysis and a detailed roadmap for substantial reform. His strategy aims to integrate financial stability with ethical governance, striving to create a banking system free from political and corporate interference.

Reforms: key pillars

Task force for bank restructuring: A specialised task force is dedicated to revamping distressed banks, enhancing governance, and addressing non-performing assets. Their goal is to implement structural reforms that ensure accountability and restore the financial health of troubled institutions.

Holistic political and economic reforms: Recognising that financial reforms alone are insufficient, Dr Mansur is advocating for parallel political reforms — combating corruption and boosting public sector efficiency—to create a conducive environment for sustainable economic growth.

International collaboration: The reform initiative has received robust international backing. Major global financial institutions, such as the World Bank and the Asian Development Bank, are committing substantial resources. This support not only affirms confidence in the reforms but also provides essential financial assistance for their successful implementation.

Restoring public confidence

REBUILDING public trust is central to Bangladesh’s banking sector reform efforts. To address challenges such as corruption, non-performing loans, and capital flight, Bangladesh Bank is implementing a comprehensive approach:

Assessing distressed assets and risks: A dedicated task force is evaluating the financial health of banks, focusing on troubled assets and major risks.

Enhancing governance: Initiatives are underway to improve transparency and governance by closely monitoring financial indicators, loan statuses, and liquidity management.

Proposing reforms: The reform agenda includes recommendations to reduce political and corporate influence, alongside regulatory and structural changes.

Restructuring banks: Strategic measures are being implemented to rehabilitate, merge, or restructure failing banks, including asset separation and legislative adjustments.

Assuring depositors: Efforts are being made to protect depositors’ funds and reinforce confidence in the banking system’s stability.

Leadership overhaul: Replacing ineffective management with credible leaders is essential for restoring trust in financial institutions.

Recovering capital: Initiatives are focused on reclaiming funds lost through capital flight to enhance liquidity and sector stability.

An additional 12-member task force has been formed to develop strategies for a fair, sustainable and dynamic economy. Their responsibilities include formulating economic strategies, mobilising resources and delivering a detailed preliminary report within three months. These actions aim to restore transparency, enforce accountability and stabilise the banking sector, ultimately fostering renewed public confidence and long-term stability.

Key considerations for success

THE reform plan is both strategic and timely, yet several critical factors must be addressed to ensure its comprehensive success and long-term impact:

Timely execution: Immediate and decisive action is crucial to restore public trust and prevent further instability in the financial system.

Clear restructuring criteria: Establishing transparent and well-defined criteria for restructuring or liquidating banks will enhance the credibility and effectiveness of recovery efforts.

Accountability and oversight: Rigorous monitoring and accountability measures are essential for overseeing asset recovery and managing non-performing loans effectively.

Combating money laundering: Strengthened international cooperation is necessary to address money laundering and mitigate illicit financial outflows.

Long-term structural reforms: Implementing long-term structural reforms, such as establishing a banking commission, could play a vital role in ensuring sustained progress and oversight.

Central bank independence: Protecting the independence of the Bangladesh Bank from political interference is crucial for maintaining the integrity and effectiveness of the reform initiatives.

Global support and strategic focus

Bangladesh’s reform efforts are significantly bolstered by robust international support:

World Bank: Negotiations are underway for a $450 million loan aimed at modernising Bangladesh Bank and strengthening its regulatory framework.

Asian Development Bank: ADB has committed $1.3 billion over three years, including $500 million in the first year, to support bank restructuring and drive economic revitalisation.

United States: The US has pledged $200 million in aid. Recent discussions in Dhaka with Treasury assistant undersecretary Brent Neiman and State Department assistant secretary Donald Lu, alongside the signing of the aid agreement by economic and commerce adviser Salehuddin Ahmed, emphasise enhancing governance, fostering inclusive development, and expanding social and economic opportunities.

This global backing highlights the international community’s confidence in Bangladesh’s reform agenda and provides a crucial foundation for long-term financial stability and growth.

New era for banking sector

AS BANGLADESH embarks on this transformative reform journey, its commitment to transparency, accountability and international collaboration stands as a beacon of hope. With substantial support from global partners and the recent US aid agreement, the country is well-positioned to tackle both immediate challenges and long-term structural issues. This reform initiative not only aims to restore confidence in the financial system but also lays the groundwork for sustainable economic growth. While the road ahead is challenging, Bangladesh’s dedication to meaningful reform offers a promising outlook for a future where the banking sector emerges as a cornerstone of national strength and prosperity.​

 

[Saif]

World Bank to support Bangladesh to reform banking sector: Finance adviser

The World Bank will provide support in reforming banking and other sectors in Bangladesh, Finance and Commerce Adviser Dr. Salehuddin Ahmed said on Thursday. He said this after a meeting with Martin Raiser, vice president for the South Asia Region of the World Bank, at his secretariat office.

en.prothomalo.com

World Bank to support Bangladesh to reform banking sector: Finance adviser
UNB
Published: 19 Sep 2024, 20: 14

Finance and commerce adviser Salehuddin Ahmed BSS

The World Bank will provide support in reforming banking and other sectors in Bangladesh, Finance and Commerce Adviser Dr. Salehuddin Ahmed said on Thursday.

He said this after a meeting with Martin Raiser, vice president for the South Asia Region of the World Bank, at his secretariat office.

Speaking to reporters the adviser said, "We discussed various projects with the World Bank's South Asia vice president and his team, including budget support, assistance in the energy sector, fertilizer imports, food, and post-flood aid."

Additionally, "We talked about support for the Rohingya refugees. The World Bank was very positive about all the proposals we presented, and they provided concrete responses. They assured us that they, along with other stakeholders, would coordinate, and there would be no hesitation in providing necessary funding or assistance."

"The reforms we have undertaken in the banking sector will receive support from the World Bank", said the adviser.

"We also discussed issues related to boosting investment in the private sector and addressing various challenges in business and trade. They have assured us of their assistance, and we will receive the necessary support", he added.​

 

[Saif]

Not cosmetic reforms

In every country --- no matter developed or developing --- the central bank serves as the economy's nervous system. It regulates interest rates, controls money supply, maintains foreign exchange reserves, and fights inflation. Such responsibilities are critical to ensuring economic stability,

thefinancialexpress.com.bd

Not cosmetic reforms
CAF Dowlah
Published :
Sep 30, 2024 22:42
Updated :
Sep 30, 2024 22:42
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In every country --- no matter developed or developing --- the central bank serves as the economy's nervous system. It regulates interest rates, controls money supply, maintains foreign exchange reserves, and fights inflation. Such responsibilities are critical to ensuring economic stability, especially during times of crisis, such as inflationary spikes, recessions, or declining foreign reserves.

These roles are even more pronounced for the Bangladesh Bank as it has its finger prints in all aspects of the country's financial system --- from regulating commercial banks, bailing out nationalised banks, to managing non-performing loans and even making efforts to bring back laundered money from abroad.

But far too long Bangladesh has treated its central bank like a replaceable cog in the machine, swapping out governors as if a new face would fix the deep-rooted problems. This illusion of governance has allowed financial scandals, regulatory failures, and gross mismanagement to fester. The banking sector is in a dismal state, plagued by corruption, financial irregularities, and preferential treatment for powerful borrowers.

Non-performing loans (NPLs) are skyrocketing, inflation is surging, money laundering is rampant, and foreign exchange reserves are declining-the Bank's oversight has been frail, effectiveness is highly questionable, and public trust in the system has largely eroded. This is a crisis that demands immediate action. Simply put, the Bangladesh Bank, as it stands, is failing, and piecemeal reforms will not suffice.

THE NPL TIME BOMB: Default loans in Bangladesh have spiralled out of control, reaching a staggering Tk 1456.33 billion by the end of 2023, accounting for 9 per cent of total loans. This places Bangladesh among the worst offenders globally, with an NPL rate double that of most developing countries, where the rate typically ranges between 3.2 per cent and 4.5 per cent. Bangladesh's performance is even more dismal when compared to South Asia, where the average NPL ratios from 2012 to 2021 were 7 per cent in India and 3.94 per cent in Sri Lanka.

Even more troubling, the total amount of distressed loans-comprising NPLs, rescheduled loans, and restructured write-offs-amounted to nearly one-third of all outstanding loans in the banking system by the end of 2023. Much of this problem can be traced to the lenient policies introduced by the central bank allowing banks to reschedule loans with minimal down payments and extended repayment periods for borrowers.

In a bid to meet conditions tied to a $4.7 billion loan package from the IMF, Bangladesh Bank has recently committed to an unrealistic goal of reducing NPLs to 8 per cent by 2026. The Bank's strategy, which relies heavily on easing loan write-offs, is utterly reckless and ignores the underlying issues of a weakening economy and systemic corruption that fuel NPLs. Without addressing these root causes, any promise of reduction in NPLs may be superficial and unrealistic.

INFLATION IS A TICKING TIME BOMB: For decades, Bangladesh has struggled with persistently high inflation, averaging 6.57 per cent annually between 1994 and 2024. By mid-2024, inflation had surged to 11.66 per cent, easing only slightly to 10.5 per cent by August-still well above regional averages. A major donor bank has forecasted that Bangladesh's inflation rate will rise to 10.1 per cent in the next fiscal year, compared to 4.5 per cent in India and 5.5 per cent in Sri Lanka.

In response, the central bank has opted to tighten the money supply, as if that alone could control the soaring prices. Bangladesh's inflation is largely driven by supply-side disruptions and currency depreciation, not an overheated economy. The devaluation of the taka has only worsened the situation, diverting remittances into informal channels, and deepening the inflation crisis. Instead of relying on short-term fixes, the Bangladesh Bank needs to confront these underlying issues head-on.

RAPID DECLINE IN FOREIGN EXCHANGE RESERVES: Since September 2021, Bangladesh's foreign exchange reserves have been steadily declining, reaching a critical low of $20.46 billion in August 2024-barely enough to cover two and a half months of imports. More concerning is that the net international reserves have dwindled to a mere $13 billion.

The central bank's poor handling of exchange rates has exacerbated the issue, pushing remittances into informal channels and further depleting reserves. Although a recent shift to a "crawling peg" exchange rate system and the receipt of $2.11 billion in remittances during the first 28 days of September provide some relief, the reserve situation is unlikely to improve significantly without bold corrective measures.

MONEY LAUNDERING IS A NATIONAL EMBARRASSMENT: The scale of money laundering in Bangladesh is staggering and alarming. Official estimates suggest that over Tk 1.0 trillion has been illicitly transferred abroad. In 2021, Global Financial Integrity (GFI) reported that Bangladesh lost around $8.27 billion annually between 2009 and 2018 due to the mis-invoicing of import-export goods by traders to evade taxes and facilitate illegal cross-border money transfers.

Every year, billions of dollars are funnelled out of the country through schemes like hundi, over-invoicing, and under-invoicing. While the Money Laundering Prevention Act of 2012 exists in name, its enforcement has been weak and rare, with those responsible for drafting and enforcing the law often implicated in these very activities. Although the 2023 global Anti Money Laundering (AML) Index indicated some progress for Bangladesh, such reports are often based on unreliable data and fail to reflect the true scale of the problem.

The harsh reality is that illegal financial flows are critically draining the nation's wealth. The interim government has formed a committee, led by Bangladesh Bank, to recover laundered money. The Bank must take decisive action against these criminal networks. Yet, success is far from guaranteed, given the sophisticated methods and networks used to conceal assets in both offshore and onshore laundering operations.

RADICAL REFORM IS NON-NEGOTIABLE: Cosmetic reforms or half-hearted policy adjustments will not be enough to save Bangladesh Bank-it needs a comprehensive, top-to-bottom overhaul. The central bank must be freed from the political and bureaucratic interference that has crippled its effectiveness for years. It should become a fully independent and accountable institution-free from corrupt interests. Monetary policies should be crafted diligently by highly qualified experts, not by bureaucrats climbing the ranks without the necessary expertise.

The interim government must push for radical reforms. State-owned banks, long mired in political meddling and mismanagement, must be streamlined, or privatised to safeguard nation's scare resources. The culture of cronyism must be dismantled, and the Bangladesh Bank must shift its focus to real, sustainable solutions rather than donor-driven fantasies.

Most importantly, it is imperative that the Bangladesh Bank be governed by an independent board of governors, shielded from political and bureaucratic influence, to enhance its operational effectiveness. The reliance on a single governor must give way to a system of collective decision-making on critical policy matters. Only through such bold and structural reforms can the central bank restore its integrity and safeguard the nation's long-term economic stability.

Dr Dowlah is a retired Professor of Economics and Law in the United States. Currently, he serves as the Chairperson of the Bangladesh Institute of Policy Studies (www.bipsglobal.org).​

 

[Saif]

Reduce number of banks to 30

The number of banks in Bangladesh should be reduced from 61 to 30 as part of reforms in the sector, said Prof Moinul Islam yesterday.

www.thedailystar.net

Reduce number of banks to 30
Says economist Moinul Islam as part of reforms

Photo: Collected

The number of banks in Bangladesh should be reduced from 61 to 30 as part of reforms in the sector, said Prof Moinul Islam yesterday.

He termed Rooppur Power Plant as Awami League's "white elephant" and criticised the involvement of Adani Group in energy sector, citing these projects as examples of large-scale corruption.

Moinul made these remarks at the "Dialogue for Democratic Reconstruction", organised by the Centre for Governance Studies (CGS) at a hotel in the port city.

He said Sheikh Hasina's relatives and supporters had engaged in massive looting, particularly in the banking sector. He questioned why controversial figures, such as those associated with S Alam Group, had been allowed to control multiple banks.

"We don't need so many banks in the country. The number must be reduced to 30," he said, adding that corruption in Bangladesh has been a long-standing issue, not limited to the AL regime, with similar problems during the BNP's 2001-2006 tenure.

Nizam Uddin Ahmed, a former public administration professor at Chittagong University, stressed the importance of protecting fundamental rights through constitutional reform.

Zillur Rahman, CGS Executive Director, moderated the event, emphasising that while progress may be slow, the pursuit of a democratic state must continue.

Chattogram Jamaat Amir Shahjahan Chowdhury, Nasir Uddin Munir from Hefazat-e-Islam, and representatives from the Jatiyo Party and AB Party also attended.​

 

[Saif]

Banks mostly gave loans to their owners rather than creditworthy borrowers

Bangladesh’s banking sector was not well-managed in recent years. Banks mostly gave loans to their owners, rather than to creditworthy entities. Consequently, several banks are now in difficulty.

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Banks mostly gave loans to their owners rather than creditworthy borrowers
World Bank’s senior official speaks on lending culture in Bangladesh

Bangladesh's banking sector was not well-managed in recent years. Banks mostly gave loans to their owners, rather than to creditworthy entities. Consequently, several banks are now in difficulty.

Besides, the previous administration could not effectively manage the exchange rate. It acted opposite to conventional economic wisdom.

They opted to defend a fixed exchange rate, even though the Reserve Bank of India (RBI) allowed the Indian rupee to depreciate to ensure that its competitiveness was not negatively affected.

"This caused losses of a lot of reserves. As a result, liquidity was getting tighter," said Martin Raiser, the World Bank (WB) vice president for South Asia region.

"If Bangladesh had instituted this kind of policy five-six years ago, it would not have faced the kind of liquidity shortages that the economy experienced."

In an interview with The Daily Star at the end of last week in Dhaka, he said the Bangladesh Bank is currently addressing these issues.

"I think they are doing a good job, but clearly, the financial sector needs to be one of the focuses of reform efforts now to create stronger banks and ultimately to provide more credit to SMEs [small and medium-sized enterprises]," he said.

Raiser, who visited Dhaka in the second half of the last month, also spoke about Bangladesh's economic performance, the reasons for persistent inflation, implications of low revenue collection, and necessary reforms to salvage the ailing banking sector.

The WB official also responded to questions regarding the overall support that the Washington-based agency is considering in response to a request from the interim government, which was sworn in after a mass uprising ousted the Sheikh Hasina-led government on August 5.

People here are ready to invest, to be busy and to try and improve their livelihoods. This could have led to more growth if they had access to credit.— Martin Raiser World Bank vice president for South Asia.

Raiser said Bangladesh has indeed done very well, not just recently. Its transformation has been remarkable since independence.

"We have always regarded Bangladesh as a success story."

He said in recent years, the Covid-19 crisis has adversely affected all countries and also had an impact on Bangladesh.

The country could not recover fully due to the slowdown in global trade.

Raiser said Bangladesh is getting more developed, so remaining specialised solely in readymade garments is not so sustainable. Because there are limits to the productivity increases that one can get from a single sector.

"Bangladesh has missed the opportunity to diversify the economy, bring in more foreign investment, bring more technologies, and create different kinds of jobs since the global financial crisis."

NEED A LEVEL PLAYING FIELD

Raiser said he visited Bangladesh five to six times and saw the strength of entrepreneurship.

"Lots of people are ready to invest themselves, to be busy and to try and improve their livelihoods, from the rickshaw drivers to, you know, small manufacturing to fashion designers to the gig economy. Now, a lot of dynamism could lead to more growth and more jobs if they had access to credit."

However, the nation is not getting all the benefits in the absence of a level playing field.

"So, those are some areas where Bangladesh didn't do very well in recent years and could have done much better.

"But there, you know that they can benefit. The last administration invested a lot in infrastructure and that got better. Connectivity is better, so there are some positive foundations on which Bangladesh can and should build."

OVERALL FUNDING ENVELOPE TO BE ROUGHLY $3.5 BILLION

Raiser said the interim government requested budget support for the energy sector and banking reforms.

The envelope of fresh money would be about $2.2 billion, including over $1 billion in repurposed loans, overall funding would be roughly $3.5 billion.

The official said the WB and the government have been in discussions on what will be done to support banking, tax reform, better governance, and transparency, to support the energy sector and social assistance.

"Some of these discussions predate the recent changes. Some of them are new."

BANKING SECTOR NEEDS TRANSPARENCY

Raiser said the multilateral lender wants to get more transparency in the banking sector.

He said people who park deposits in banks should know who the beneficiary owners of the banks are. When supervisors provide credit, they should know who the beneficiary owners of the enterprises are and to whom the money is lent.

"I mean, there are standards in the banking industry that impose strict limits on self-dealing. If you own a bank, you can't use that bank to benefit enterprises that you also own.

"Now, if you want to enforce those regulations, you need to know who owns what. The second is how you classify whether an asset is well-performing or not," Raiser said.

The WB Vice President said an asset becomes classified if a client cannot repay on time.

"And once the loan is classified, the bank has to keep provisions. They have to put capital aside," he said.

"That's expensive to the bank. Therefore, banks don't like to do that, but you have to force them, because if they don't have enough capital, at some point, depositors may not be able to get their money back."

He said Bangladesh has to have a better loan classification system.

Besides, measures should be taken to ensure that depositors are properly protected and to hold accountable shareholders who drive a bank in the wrong direction.

"These are the core elements of a modern and well-functioning banking system."

He said there should be better rules regarding insolvency legislation and management of distressed assets.

The purpose of all of this is to make sure that when some companies get into difficulties, the key for the policymakers is to ensure that resources are not locked up in companies that aren't producing any value, he added.

"So, you want to protect the people, but you don't want to protect every single venture. If it didn't work, take the capital resources, take the credit out and put it somewhere else where it has a better chance of success."

"That process of restructuring, of creating more competition, is complementary to the banking reforms. And it is something that we'd like to support, but that will take a bit more time," Raiser added.

On reforms, he said the interim government has to prioritise and respond to the expectations of the people.

"One of the things that I've heard very loudly is more accountability, more transparency, and better governance. That's something that I think they want to do, and they should do, because that's what the people are expecting."

He said the interim government obviously wants to make adjustments to the political and judicial systems and the rule of law and order, which is not the area of the WB's competence.

"Our area of expertise is the management of the economy," he added.

COLLECTING MORE REVENUE IS A KEY PRIORITY

Raiser said the WB can support improving economic management. Revenue management is an area Bangladesh should work on.

He said the revenue authority collects a fairly low level of taxes. As a result, it has limited public resources available to deliver better services.

"So, if you're talking about cleaning up the rivers, yes, that's a hugely important thing. But it's also expensive, so you're going to have to collect more revenue if you're going to do all of that."

The government also needs to spend more on education and healthcare.

"I think collecting more revenue is an important priority, and I think we can help both on the tax administration side and on the tax policy side," he said.

"Just to give you one example, Bangladesh has a lot of exemptions. Some of the exemptions are targeted to individual companies. That's not a very good tax policy."

Raiser also stressed the importance of better public finance management and procurement processes.

"What's the system whereby projects get approved? What's the scrutiny behind them, but then also, how efficient is the process?

"You don't want a lengthy approval process, but you want to make sure they're robust. There are proper checks and balances in place. That's another area that we can work on."

In the medium term, he said improving the business environment, making it easier for companies to get the permissions to invest and access to land is vital.

Raiser said the government needs to improve environmental regulations and ensure enforcement.

"It doesn't pay in the long run for a country to try and be competitive by polluting its own environment. Ultimately, people will pay."

INFLATION TO COME DOWN

The WB official, while responding to a question about why inflation in Bangladesh remained stubbornly high when neighbouring India managed to bring it down, said there had been major supply disruptions in July and August, which kept inflation higher.

Besides, he said until recently, monetary policy was also relatively loose.

"You know, real interest rates were negative, and all these factors combined probably led to a situation in which supply was restricted and demand was still supported and that has led to inflation."

Raiser said inflation rates have actually come down quite sharply in recent months.

"So, I think there's a good prospect with, you know, the new management and the Bangladesh Bank as they are committed to bringing inflation down. There's a good prospect that inflation will come down."

"It may not happen immediately. It takes a while for this to work through the system. But I think there are good prospects for inflation to reduce."​

 

[Saif]

Crisis-hit banks repaying depositors for emergencies, basic needs

As crisis-hit lenders have started getting liquidity support from the inter-bank money market, they are now repaying depositors for specific purposes, such as medical emergencies, and in the case of salary disbursement or remittance encashment.

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Crisis-hit banks repaying depositors for emergencies, basic needs

As crisis-hit lenders have started getting liquidity support from the inter-bank money market, they are now repaying depositors for specific purposes, such as medical emergencies, and in the case of salary disbursement or remittance encashment.

Depositors regularly gather at the branches, head offices and ATM booths of cash-strapped banks, but are usually unable to get the amount of money they require.

However, officials of the banks said since they are now getting liquidity support from sound banks, they can repay depositors to some extent.

After obtaining a Bangladesh Bank (BB) guarantee to avail liquidity support from the inter-bank money market, First Security Islami Bank, Social Islami Bank, Global Islami Bank and National Bank received a total of Tk 945 crore in support from five sound banks.

In the second phase, First Security Islami Bank, Social Islami Bank, Global Islami Bank, National Bank, and Islami Bank Bangladesh received Tk 1,480 crore as liquidity support.

Depositors regularly gather at the branches, head offices and ATM booths of cash-strapped banks, but are usually unable to get the amount of money they require

Apart from National Bank, Chattogram-based conglomerate S Alam Group had a stranglehold on the board of directors of the other lenders that are now facing liquidity crises.

Following the installation of an interim government in August, all those lenders saw their boards of directors reconstituted.

So far, Union Bank has yet to get any liquidity support. As such, its new board of directors met with central bank Governor Ahsan H Mansur on Wednesday to avail the BB guarantee.

Contacted, Mohammed Nurul Amin, the new chairman of Global Islami Bank, told The Daily Star the bank was now repaying depositors based on emergency and priority.

"We request depositors not to withdraw money if there is no urgent need."

He added that the central bank should speed up the process of providing guarantees. Otherwise, he cautioned, it will be difficult to regain the confidence of depositors.

Mohammad Abdul Mannan, the new chairman of First Security Islami Bank, said normal banking activities were resuming after it received Tk 375 crore from the inter-bank money market.

He further added that the bank had already recovered around Tk 600 crore from borrowers since its board was reconstituted.

"We are repaying depositors to fulfil basic needs or for medical issues, any urgent cases and encashment of remittance."

The bank is now trying to repay large-scale depositors in phases, he added. "We are now trying to win back the trust of depositors."

Six banks that were under the grip of the S Alam Group have been facing liquidity crises for more than two years.

Under the previous government, which was ousted by a mass uprising on August 5, the central bank provided special liquidity support to ailing lenders by printing money, which fuelled inflation.

However, after being appointed to the top post at the central bank, Mansur said the BB would not provide liquidity support by printing money and would instead allow banks to seek support from the inter-bank money market.

As this process takes longer, the situation plaguing the troubled lenders intensified.

Global Islami Bank chairman Amin said it may take around one year to mitigate the crisis at ailing banks.​

 

[Saif]

The road to recovery

IN THE late 1920s, the world witnessed the collapse of the Weimar Republic, and with it, the German economy fell into disarray. Hyperinflation, a collapsed banking system, and...

www.newagebd.net

The road to recovery
by Md Junayed Hossain 20 October, 2024, 00:00

New Age/ Mehedi Haque

IN THE late 1920s, the world witnessed the collapse of the Weimar Republic, and with it, the German economy fell into disarray. Hyperinflation, a collapsed banking system, and massive social unrest paved the way for the rise of the Nazi regime — a stark reminder of how economic instability can lead to catastrophic socio-political outcomes. The lessons from history serve as a reminder that when financial systems are left to deteriorate, the consequences ripple far beyond the economy, shaking the foundations of society itself.

Today, Bangladesh stands at a critical crossroads, as its fragile banking sector faces mounting pressures that could destabilise the nation’s socio-economic fabric. Over the past decade, persistent malpractices, corruption, weak governance, and an alarming rise in non-performing loans have eroded trust in the financial system. Without decisive intervention, the country risks plunging into an economic crisis that could severely hamper business activities, deter investment, and ultimately harm ordinary citizens.

To avert such a crisis, the government, alongside the central bank, must urgently implement a series of targeted macroeconomic and structural reforms. These measures should focus on restoring confidence, ensuring liquidity, and safeguarding the long-term sustainability of the financial sector. Various strategic options, such as quantitative easing, capital injections, and targeted bailouts, should be considered to tackle the sector’s fragility.

Quantitative easing as a liquidity tool

ONE potential policy option is quantitative easing, a tool that has been used effectively by central banks worldwide during times of economic crisis. By purchasing long-term financial assets such as government bonds or high-quality bank assets, the central bank could inject much-needed liquidity into the banking system. The primary goal of QE would be to lower interest rates, expand the money supply, and provide struggling banks with the capital they need to meet withdrawal demands and expand credit to businesses and consumers.

This influx of liquidity would help avert a potential credit crunch, which would otherwise stifle investment and economic growth. However, QE must be implemented cautiously, as excessive liquidity could lead to inflationary pressures and a depreciation of the national currency. A carefully managed QE program could provide breathing space for banks to stabilise while spurring broader economic recovery.

Government bailouts: a delicate balancing act

IN EXTREME cases of banking sector insolvency, where liquidity issues evolve into solvency crises, the government may need to consider direct bailouts. A bailout involves the injection of government funds into struggling banks to prevent their collapse and restore solvency. While controversial, especially given the mismanagement and corruption that have plagued many of these institutions, a bailout may be a necessary measure to prevent widespread financial chaos.

However, any bailout must come with stringent conditions. These conditions should include the restructuring of management teams, the implementation of stronger governance protocols, and mechanisms for improved accountability. The failures of many banks in Bangladesh can be traced back to poor governance, political interference, and inadequate risk management practices. A bailout without addressing these root causes would only serve as a temporary bandage over a deeper wound.

To ensure the effective use of public funds, the government could implement a ‘good bank, bad bank’ model. In this approach, bad assets, primarily NPLs, would be transferred to a ‘bad bank’ for specialised management and eventual liquidation. This would allow the ‘good banks’ to focus on their core business operations without being burdened by toxic assets. By isolating bad loans, these institutions could rebuild trust and attract new capital for growth.

Addressing non-performing loans

ONE of the most pressing issues plaguing Bangladesh’s banking sector is the high level of NPLs, which have severely impacted the profitability and sustainability of many banks. These NPLs, often politically backed and devoid of effective recovery mechanisms, have become a systemic issue. To address this, the central bank must adopt stricter regulatory measures and implement legal reforms to expedite the recovery of defaulted loans.

In the short term, creating a dedicated asset management company to manage these toxic assets is essential. By isolating NPLs in a centralised entity, banks would be able to focus on rebuilding their balance sheets and pursuing profitable growth opportunities. Additionally, the central bank could incentivise banks to sell off their bad loans at discounted rates to specialised asset management firms, which would be tasked with the recovery and resolution of these distressed assets.

Transparency and restoring confidence

ONE of the greatest dangers facing Bangladesh’s banking system is the erosion of public trust. If depositors lose confidence in the safety of their funds, the risk of widespread withdrawals could trigger a liquidity crisis, exacerbating the already fragile state of the sector. Clear and consistent communication from both the government and the central bank is essential to reassure the public that their deposits are safe and that concrete steps are being taken to stabilise the sector.

Ensuring transparency in the restructuring process, including regular updates on reforms, capital injections, and asset recovery efforts, will go a long way toward calming public fears. The introduction of deposit insurance schemes could further enhance depositor confidence by guaranteeing that their funds are protected, even in the event of a bank failure.

Bangladesh’s fragile banking sector presents a formidable challenge, but it also offers an opportunity for meaningful reform. By employing a combination of quantitative easing, targeted bailouts, bank mergers, and enhanced regulatory oversight, the government can restore stability to the financial sector and set the economy on a sustainable path to recovery. Addressing capital shortages, tackling NPLs, and ensuring transparency will not only rebuild public trust but also lay the foundation for long-term economic growth. Just as history has shown the perils of inaction, today’s policymakers must take bold, decisive steps to secure Bangladesh’s financial future.

Md Junayed Hossain is a financial analyst.​

 

[Saif]

No respite yet from banking sector woes

A crisis of confidence has gripped the country’s banking sector amid little action taken to resolve the deep-rooted challenges facing the sector and hold those accountable for years of malfeasance and mismanagement...

www.newagebd.net

No respite yet from banking sector woes
Mostafizur Rahman 27 October, 2024, 23:47

A crisis of confidence has gripped the country’s banking sector amid little action taken to resolve the deep-rooted challenges facing the sector and hold those accountable for years of malfeasance and mismanagement.

According to several officials of the Bangladesh Bank and other banks, aside from limited board restructurings in a few banks, no major reforms have been initiated since the interim government assumed office on August 8.

Despite initial hopes that the banking sector would stabilise after Sheikh Hasina resigned as prime minister and fled to India on August 5, the situation has barely improved.

Many banks are still unable to meet depositor demands, facing continued erosion of public trust causing panic fund withdrawals.

On September 8, new central bank governor Ahsan H Mansur acknowledged that around 10 banks faced risk of bankruptcy—a statement that further deepened the clients’ panic intensifying the rush of withdrawals.

The situation deteriorated further after the central bank restructured the boards of 11 banks and announced that it would not directly provide them with liquidity support.

These moves only deepened depositor mistrust, making it increasingly difficult for struggling banks to recover.

In response to the crisis, the central bank began providing limited support by guaranteeing interbank loans, disbursing Tk 5,000 crore to six distressed banks over the past one month.

The sector’s liquidity crisis, however, persists, with depositors still deeply concerned about the security of their funds.

Mutual Trust Bank managing director and chief executive officer Syed Mahbubur Rahman said that currently approximately 15 banks were battling against various crises that were unlikely to resolve soon.

He noted that aside from board restructurings at some banks, no significant reforms had yet been observed, adding, ‘We anticipate some visible reforms by December this year.’

Mahbubur said that although boards were restructured, much of the same senior management remained in place, casting doubt on their intension to lead meaningful changes.

He acknowledged the challenge of replacing senior management staff who had been in place for years.

On the crisis of confidence among depositors, Mahbubur highlighted that a quarter of banks were struggling with a severe liquidity crisis failing to repay depositors’ money.

Besides, he also mentioned the prevailing overall uncertainty and poor law and order situation as some key factors behind the ongoing crisis in the banking sector.

‘Government officials, including bankers, are currently in a “wait and see” mode given the broader political climate,’ he remarked.

As of the last working day in August, total bank deposits dropped to Tk 17.31 lakh crore from Tk 17.34 lakh crore in the last working day in July.

In end of August, currency outside banks surged for the 10th consecutive month, reaching Tk 2.92 lakh crore as depositors continued withdrawals.

Non-performing loans skyrocketed to Tk 2.11 lakh crore by June, up from Tk 88,734 crore in December 2021, underscoring the sector’s prolonged loan irregularities.

S Alam Group withdrew around Tk 2 lakh crore loans through companies including shell firms in collusion with some banks and central bank officials.

Similarly, Beximco Group borrowed Tk 25,000 crore from Janata Bank of which Tk 18,000 crore is now non-performing.

The central bank has largely turned a blind eye to such massive loan irregularities, often aiding these groups through relaxing regulations and maintaining silence.

Consequently, the sector faces a crippling liquidity shortage, with depositors losing trust not only in individual banks but also in regulatory bodies.

According to bankers, influential officials with strong ties to powerful political and business groups have retained their positions, blocking meaningful reform efforts.

Even within the central bank, key officials linked to groups like S Alam and Bashundhara remain in place, leading to the bank’s failure to address or expose corrupt practices, they observe.

So far, the Bangladesh Bank has refrained from taking punitive action against bank officials involved in these activities, perpetuating a lack of accountability and further deepening the sector’s ongoing crisis.

Additionally, the persistent dollar crisis, elevated exchange rates, acute liquidity shortages, and high-interest rates are deterring businesses from securing loans and opening letters of credit, negatively impacting the economic.

The government, facing this bleak scenario, has also struggled to secure sufficient loans from the banking sector.

Bangladesh Bank’s spokesperson and executive director, Husne Ara Shikha, stated that the central bank has restructured the boards of 11 banks to rebuild public trust and ensure good governance.

Regarding allegations that information on prior irregularities involving senior bank officials has been concealed, she clarified that the responsibility lay with the respective bank’s board to remove, transfer, or replace employees, including the managing director, for the sake of public interest.

Moreover, the central bank would make final decisions based on recommendations from the respective boards, she said.

The central bank was committed to taking action against any bank officer if complaints were found valid, said the Bangladesh Bank executive director.​

 

[Saif]

We need to protect depositors from bank boardroom misuse

Having a well-balanced and accountable board is paramount, especially as a bank holds and manages the funds of depositors.

www.thedailystar.net

We need to protect depositors from bank boardroom misuse

Visual: Salman Sakib Shahryar

In recent times, we have had a barrage of reports showing how, during the tenure of the Awami League regime, politically influential or affiliated directors in private banks abused their power to misappropriate general depositors' savings through illegal or unethical practices. These include sanctioning loans without due diligence, waiving or writing off loans and their interest, extending or rescheduling loans without reasonable grounds, making bank investments without proper feasibility studies, etc. Such poor governance resulted in an unprecedented misappropriation of depositors' money over the last decade or so.

While most malpractices in the banking sector stem from inadequate supervision and poor accountability practices by the central bank, the loopholes within the existing legal framework on banking governance also play a significant role. Corrupt individuals and their allies managed to legalise their wrongful actions by using some flawed provisions of the Bank Company Act, 1991 (amended up to 2023)—the primary legislation governing the banking sector. To identify the weaknesses in the legal provisions regarding accountability and transparency, it is crucial to understand the functions and powers of a bank's board of directors.

Legally, a board of directors is the highest decision-making body in a bank, responsible for formulating and implementing policies, risk management, internal controls, internal audits, and compliance. In short, the board oversees all business and administrative actions of a bank. So having a well-balanced and accountable board is paramount, especially as a bank holds and manages the funds of depositors. However, malpractice in the banking sector often begins when influential individuals take control of the board. The question is, does the current banking legislation prevent a bank from falling under the control of vested interests? The answer is somewhat affirmative.

Section 14Ka of the Act states that the shares of a bank cannot be accumulated in the hands of an individual, particular family, or company—and it bars them from acquiring more than 10 percent of shares in a banking company. Moreover, Section 15 restricts the number of directors from one family to three at a time, while Section 23 allows two additional directors from the same family's affiliated or controlled company or institution.

But since a bank, being a public limited company, must have at least three members on its board, including at least two independent directors, it is legally possible for five out of seven members on a board to be from a single family or its affiliated companies, allowing it to control the board. Such a concentration of control within a family raises ethical and legal concerns. For instance, appointing family members and associates to key positions in a bank could lead to conflicts of interest, where personal interests might overshadow depositor interests. Moreover, favouritism and incompetence may lead to poor compliance and thereby increase the risk of financial mismanagement and misappropriation.

Furthermore, according to an amendment to the Act passed on June 21, 2023, an individual can serve as a director for twelve consecutive years and may be reappointed after a three-year break. Such a lengthy tenure can allow directors to entrench themselves and misuse their position for personal gain rather than safeguarding depositor interests. All these vague and legally tenuous provisions of the Bank Company Act can open avenues for vested interests to amass control over banks.

Beyond the formation of the board, the most critical issue is ensuring transparency and accountability among directors. The Act mandates that directors, managing directors or chief executives, and senior management officials disclose the "name, address, and other details of their commercial, financial, agricultural, industrial, and other businesses," along with details of family business interests, to the board annually. However, Section 18 does not require this disclosure to be submitted to Bangladesh Bank, creating a transparency loophole. A board plagued by vested interests will naturally like to shield its members. Additionally, the Act requires directors and members of senior management to notify the board if they have a relationship with anyone bound or about to be bound in a significant contract with the bank. While this provision initially appears well-suited to promote transparency, the vague term "significant contract" leaves room for misinterpretation and manipulation.

Beyond the formations and functions of bank management, the 2023 amendment to the Act also raised concerns by granting substantial concessions to loan-defaulting companies. It stipulates that if one company within a group defaults, other companies within the same group or linked to the same individuals won't be classified as defaulters. This will also not affect their ability to secure new loans. Economists believe these changes risk increasing intentional loan defaults, further worsening bank governance issues.

What becomes clear from the above discussion is that existing legal provisions can, and do, allow for malpractice within banks. To protect general depositors' interests and restore good governance in the sector, we must reform the legal framework for board formation and its transparency.

Farhan Masuq is lecturer of law at Bangladesh University of Professionals (BUP).

Khushnuma Khan is a barrister-at-law.​

 

[Saif]

Tk 3,000cr export fund held up in four troubled banks

A large chunk of a Tk 10,000 crore central bank fund, meant for financing raw material imports for export orders, remains stuck with four crisis-hit banks, according to Bangladesh Bank officials.

www.thedailystar.net

Tk 3,000cr export fund held up in four troubled banks

A large chunk of a Tk 10,000 crore central bank fund, meant for financing raw material imports for export orders, remains stuck with four crisis-hit banks, according to Bangladesh Bank officials.

This has made it difficult for sound banks to get adequate liquidity from the Export Facilitation Pre-Finance Fund (EFPF) to lend to local exporters for raw material purchases from foreign markets.

The four banks are Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank and Union Bank -- the boards of which were previously dominated by the Chattogram-based industrial conglomerate S Alam Group.

Following the political changeover on August 5, the banks saw their boards reconstituted, ousting S Alam's men from the boardroom.

Still, the banks have struggled to repay the Bangladesh Bank Tk 3,035 crore, due mainly to their severe liquidity crisis. Therefore, the central bank has been extending the repayment deadline.

Of the total amount, Tk 2,000 crore is owed by Islami Bank Bangladesh, Tk 600 crore by Social Islami Bank, Tk 400 crore by First Security Islami Bank and Tk 35 crore by Union Bank.

In January last year, the Bangladesh Bank formed the Tk 10,000 crore EFPF to support industries facing raw material import challenges due to a foreign currency crisis.

Since the fund's formation, the central bank disbursed Tk 7,900 crore to banks, and has so far recovered Tk 3,200 crore in principal, according to central bank officials.

The officials said several other banks such as NCC Bank, Janata Bank, Global Islami Bank, Premier Bank, Prime Bank, Mercantile Bank, Bangladesh Krishi Bank, Bank Asia and Eastern Bank continue to utilise the pre-finance fund.

Speaking on condition of anonymity, a senior central bank official told The Daily Star that the banking regulator usually deducts the fund from lenders' current accounts upon the expiration of the repayment term.

As per the rules, every lender has to maintain a current account with the central bank.

But the current accounts of the four banks with the central bank remained negative for a long time due to the liquidity crisis. As a result, the central bank was unable to deduct the fund, the official added.

"New fund disbursement to the lenders has been suspended as a large portion is already stuck with them," said the official.

Except for Islami Bank Bangladesh, the commercial lenders are now struggling even to repay their depositors.

Central bank officials expressed optimism that Islami Bank Bangladesh would be able to repay the fund by December of this year, as its negative current account balance continues to decrease.

The Daily Star attempted to contact Islami Bank Bangladesh Chairman Obayed Ullah Al Masud and Managing Director Mohammed Monirul Moula by phone, but neither responded to the calls as of yesterday noon.

The crisis-hit banks are currently repaying depositors on a limited scale by securing liquidity support from the inter-bank money market and through central bank-issued guarantees.

Mohammad Abdul Mannan, the new chairman of First Security Islami Bank, recently told the newspaper that normal banking activities were resuming and they were working to repay depositors with the liquidity support.

A senior Social Islami Bank official said they are now repaying depositors for emergency purposes by utilising the liquidity support.

Union Bank's new Chairman Md Farid Uddin Ahmad could not be reached for comment.

In January of 2023, the central bank introduced the EFPF for exporters, coinciding with the phasing out of the Export Development Fund (EDF) as per prescriptions of the International Monetary Fund (IMF).

As of now, the EDF stands at around $2 billion, trimmed down from $7 billion in December 2022.

Members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association, BKMEA and B and C type industries in export processing zones (EPZs) are eligible for financing from the EFPF.

An exporter can get a maximum loan of Tk 200 crore from the fund, which must be used for raw material imports. Banks are required to pay back the fund within six months, although they may extend or reduce the repayment period for their clients.

According to the scheme guidelines, clients with overdue export bills are not eligible for new funds from the scheme.

Besides, clients already receiving loans from other central bank funds for raw material imports are not allowed to get loans from the EFPF. Central bank officials said loan defaulters are also barred from accessing the EFPF.​

 

[Saif]

Don’t withdraw money from banks unless necessary: BB spokesperson

Deposited money is safe in banks, Husnay Ara Shikha says

www.thedailystar.net

Don’t withdraw money from banks unless necessary: BB spokesperson
Deposited money is safe in banks, Husnay Ara Shikha says

Bangladesh Bank Executive Director and Spokesperson Husnay Ara Shikha has requested depositors to avoid withdrawing money from banks unless absolutely necessary, assuring them that their funds are safe.

No bank in the world would be able to provide funds if all depositors tried to withdraw their money at once, she said in a press conference today on the current scenario in the banking sector.

Some banks are failing to repay depositors due to the withdrawal rush, Shikha said.

"Don't panic about the deposited money. Everyone will get their money back."

Shikha made the comments at a press conference held at the Bangladesh Bank headquarters in Dhaka today.

The banking regulator is extending liquidity support to some restructured banks, the central bank spokesperson said.

The board of directors of 11 banks – majority controlled by the controversial S Alam Group -- were reconstituted since the installation of the interim government in August this year.

Half of them are now struggling to repay depositors as the central bank has suspended providing liquidity support by printing money.

Three task forces were formed a month ago for banking sector reforms, Shikha said.

One of the task forces is working on banking reforms, another on increasing the efficiency of the banking sector workforce, and the third on recovering laundered money, she said.

Lawyers and consultants from different countries are being recruited in the task forces, she added.

Bangladesh saw a fall in inflation in this year's September, when it came down to 9.92 percent from August's 10.49 percent, according to data released by the Bangladesh Bureau of Statistics.

The BB executive director said inflation fell in the country thanks to the increase in the policy rate by the banking watchdog.

The policy rate, which now hovers around 10 percent, has been increased thrice since the beginning of the interim government's tenure, she said.

Inflation may come down to around 6 percent if the downward trend continues for the next six months, the BB spokesperson said.​