[🇧🇩] Banking System in Bangladesh

[Saif]

New rules in the making to give more autonomy to Bangladesh Bank

The government is going to amend the Bangladesh Bank Order, 1972 to align it with global best practices and give the central bank more autonomy so that it can initiate steps to help the economy deal with pressure.

www.thedailystar.net

New rules in the making to give more autonomy to Bangladesh Bank

The government is going to amend the Bangladesh Bank Order, 1972 to align it with global best practices and give the central bank more autonomy so that it can initiate steps to help the economy deal with pressure.

The central bank authorities have prepared the primary draft to modify the order and sent it to the government for approval.

It comes as the BB faces criticism for its failure to restore macroeconomic stability, bring down inflation, and bring back good governance in the ailing financial sector.

The International Monetary Fund (IMF) also raised questions about the current level of the autonomy enjoyed by the BB and recommended changes to the order.

"The order needs to be substantially amended so that price stability is the overriding objective of the new monetary policy regime, and governance arrangements are aligned accordingly," said the IMF in its technical assistance report regarding the central bank's activities.

There is no doubt that the central bank should enjoy full autonomy. At present, there is autonomy when it comes to rules and regulations. However, it is being impacted by the political economy
— Atiur Rahman Former governor of BB

Due to a lack of autonomy, the IMF said that the central bank is not able to take steps necessary for the economy, which has been witnessing one of its worst crises in recent times.

It said the Bangladesh Bank Order (BBO) saw improvements following changes in 2003. However, no changes have occurred to the BB's governance arrangements regarding its autonomy, transparency and accountability since an assessment undertaken in 2018.

"BB's de jure autonomy …. could constrain BB actions in times of pressure."

"The amendment is needed so that it can enhance the de jure autonomy of the BB, enhance its accountability arrangements, and limit its direct lending to priority sectors."

The BB governor's post can be a constitutional one or the tenure of the post can be six years. If the post of the PSC chairman and ACC chairman can be constitutional, why not the governor's post?

— Mohammed Farashuddin Former governor of BB
The IMF said amendments should be considered as soon as possible, taking advantage of the momentum provided by the BB's announcement of the transition to an interest rate-targeting monetary regime.

The government told the Washington-based lender during the second review of the $4.7 billion loan programme in April that it would seek IMF's assistance while reviewing the draft amendments to the BBO to ensure that the order is consistent with international best practices by December.

It intends to submit the amendments for the cabinet's approval within the programme period. The 42-month programme was approved in January last year.

According to the draft amendments, notwithstanding anything contained in any other law in force, the BB will have the sole authority to issue any directive, directly or indirectly, to any bank or financial institution.

Mohammed Farashuddin, a former central bank governor, said if the central bank has strong power, it is good for the country. On the other hand, if it lacks power, its activities are still not disrupted.

Atiur Rahman, also a former governor, said there is no doubt that the central bank should enjoy full autonomy.

"At present, there is autonomy when it comes to rules and regulations. However, it is being impacted by the political economy."

According to Rahman, if the central bank enjoys autonomy, it would be helpful to keep the economy stable. When the government realises the autonomy's importance, it will be in favour of independence.

Both Rahman and Farashuddin emphasised making the post of the governor constitutional.

The tenure of the governor can be six years, said Farashuddin, who held the post from November 1998 to November 2001.

"However, when I say this, I get the response that the governor enjoyed limited power when you were the governor, but you were not blocked by anyone."

He said a governor has power legally. "The power is a symbolic issue. It depends on who uses the power."

The ninth governor of the BB said he did not allow the government to take any loans from the central bank.

Farashuddin said he depreciated the currency several times before informing the then finance minister though the power was vested with the finance ministry.

The seventh governor of the BB said there were strict policies about the number of people who could sit on a board of banks and their tenure.

However, in recent years, the rules have been relaxed. For example, the forbearance for loan repayments and the relaxed loan rescheduling policy had been offered by the central bank. Still, it has failed to rein in the upward trend of non-performing loans (NPLs).

Another mistake on the part of the BB was to introduce a 9 percent lending rate ceiling in April 2020, which made loans cheaper. The interest rate was made market-based only on May 8 this year following advice from the IMF.

"Loan rescheduling is being allowed nine or ten times too. Interest waiver was given but it has to be stopped," Farashuddin added.

The IMF said some provisions of the order have given the government power that could constrain the BB's ability to "do whatever it takes" to achieve its objectives of price stability.

"The BBO section 82 also places the BB under the de facto control of the government of Bangladesh," it said.

A provision of the order called for establishing a council comprising the finance and commerce ministers, the governor, the secretary of the finance division, the secretary of the Internal Resources Division, and a member of the Planning Commission, for the co-ordination of fiscal, monetary and exchange rate policies.

The BB will ensure that the macro-economic framework as coordinated by the council is reflected in the policies of the BB, according to the provision.

"Therefore, the autonomy of the BB is not guaranteed," the IMF said.

The establishment of a dedicated body chaired by the ministry of finance to perform such coordination could also constrain BB actions in times of pressures, it added.​

 

[Bilal9]

During the watch of this Shameless ghatiya BB Governor, we had mal actors attempt to hack almost a Billion dollars from BB. Only by the grace of almighty Allah, the NYC MFR Hanover Bank noticed the hacks and shut down most of the illegal money transfer worth hundreds of millions of dollars. We still lost almost 60 Million hacked funds to Philippine banks, which they are yet to return.

This guy eluded complicity (and due criminal prosecution) by conveniently resigning from his post and go into retirement, as a reward for his complicity with illegal loans-without-collateral acts perpetrated by govt. functionaries. The FBI and NSA from US who investigated this incident, says that there was internal complicity from within BB, some from Indian IT contractors hired by the bank.

Just look at his shameless smile (and comb-over) - may Allah's lakh lana'at befall this incompetent individual appointed by even more incompetent fools under Hasina. He helped make the hapless poor people of Bangladesh even poorer. Wonder how he sleeps at night.

 

[Saif]

View attachment 6872

During the watch of this Shameless ghatiya BB Governor, we had mal actors attempt to hack almost a Billion dollars from BB. Only by the grace of almighty Allah, the NYC MFR Hanover Bank noticed the hacks and shut down most of the illegal money transfer worth hundreds of millions of dollars. We still lost almost 60 Million hacked funds to Philippine banks, which they are yet to return.

This guy eluded complicity (and due criminal prosecution) by conveniently resigning from his post and go into retirement, as a reward for his complicity with illegal loans-without-collateral acts perpetrated by govt. functionaries. The FBI and NSA from US who investigated this incident, says that there was internal complicity from within BB, some from Indian IT contractors hired by the bank.

Just look at his shameless smile (and comb-over) - may Allah's lakh lana'at befall this incompetent individual appointed by even more incompetent fools under Hasina. He helped made the hapless poor people of Bangladesh even poorer. Wonder how he sleeps at night.

He is an opportunity seeker. Most of the people who support Awami League fall in this category. It was on the media that Sheikh Hasina's son Joy was also involved in the Bangladesh Bank's financial scam.

 

[Bilal9]

He is an opportunity seeker. Most of the people who support Awami League fall in this category. It was on the media that Sheikh Hasina's son Joy was also involved in the Bangladesh Bank's financial scam.

Not unlikely. Stealing million of dollars from banks in various ways by powerful folks in Bangladesh has become too easy nowadays. Just think about how people close to the govt. can illegally transfer thousands of crores to Dubai or Singapore banks and get away with it.

 

[Saif]

Not unlikely. Stealing million of dollars from banks in various ways by powerful folks in Bangladesh has become too easy nowadays. Just think about how people close to the govt. can illegally transfer thousands of crores to Dubai or Singapore banks and get away with it.

শেখ মুজিব যথার্থই বলেছিলেন যে, 'সবাই পায় তেলের খনি আর আমি পাই চোরের খনি'।

 

[Saif]

Central bank’s autonomy crucial for the economy

Its lack of independence has had disastrous effects

www.thedailystar.net

Central bank's autonomy crucial for the economy
Its lack of independence has had disastrous effects

VISUAL: STAR

It's heartening to see the government acknowledge the importance of having an independent central bank. Reportedly, the authorities are set to amend the Bangladesh Bank Order, 1972 to supposedly align it with global best practices and give it more autonomy. The development comes at a time when the economy is going through one of the worst downturns in recent memory, with inflation continuing to break records. As experts have pointed out, failed government policies have been a major factor for the runaway inflation and other economic problems we are currently experiencing. And the role of government-controlled Bangladesh Bank in this debacle is particularly notable.

It is reasonable to assume that many of our problems could have been avoided or better addressed if we had an independent and courageous central bank. The government-imposed interest-rate caps on both the lending and deposit rates—at 9 and 6 percent—is a perfect example of this. Perhaps a more independent central bank would have realised—and indeed listened to experts—that this was a flawed policy that would only end up fuelling inflation. The decision to artificially inflate the value of the taka was another disaster that, too, could have been avoided.

Even before the recent economic crisis began, the unchecked "looting" of our banking sector—under political patronage—had damaged our economy beyond comprehension. Those cracks are widening today as the government, including the central bank, fails to curb default loans with the policies for defaulters continuing to be relaxed. The government's decision to provide continuous loan rescheduling facilities and interest rate waivers to loan defaulters has not been beneficial whatsoever. Therefore, we hope the Bangladesh Bank is given autonomy to pursue stricter policies with regard to wilful defaulters, without political interventions.

In its technical assistance report regarding the Bangladesh Bank, the IMF said that the bank "order needs to be substantially amended so that price stability is the overriding objective of the new monetary policy regime, and governance arrangements are aligned accordingly." We cannot agree more. What's concerning, however, is that a provision of the order called for establishing a council comprising finance and commerce ministers, the bank governor, and others. This will ultimately constrain the bank's actions in times of pressure.

Therefore, while the amendment initiative may sound good, its success in terms of making prudent economic decisions will be determined by the degree of autonomy ultimately granted to the central bank. Previously, despite talks of providing it with autonomy, we have seen the government do the exact opposite. Hence, we hope the amendment is not simply an eyewash amid pressure for reforms. It must be able to address longstanding concerns about the bank's function and mandate. An expert-driven Bangladesh Bank that protects the nation's best interests is the need of the hour.​

 

[Saif]

A former governor’s unpleasant truths about the banking sector

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unvei

www.thedailystar.net

A former governor's unpleasant truths about the banking sector

FILE VISUAL: REHNUMA PROSHOON

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unveiled some truths about the country's banking sector where regulations have remarkably been relaxed in recent years. Seldom have we seen such blistering comments coming from a governor in Bangladesh's history. Farashuddin's statement, though commendable at a critical moment, creates enormous doubt over whether the government will really pay any attention to it.

The doubt is genuine because the looters are quite well-known to all of us, and they are flocking around the people in power. Not only have they indulged in misdeeds, but they are extravagantly empowered with high positions as well. To the bad luck of the nation, these people have been masquerading as the "true saviours" of the financial industry, if not that of the whole nation. These wolves in sheep's clothing, if not checked, will bring an economy of otherwise high potential down.

It would be a mistake for politicians to label Farashuddin as a supporter of the opposition. He was very well liked by Bangabandhu, who appointed him as his personal secretary. The Awami League government appointed him as governor of the central bank after coming to power in 1996. And most importantly, his performance at the helm of the central bank was academically sound and professionally pro-business.

Few retired bureaucrat-turned governors could do what he did. Dr Farashuddin remained committed to economic knowledge and the country's interest, not the interest of the wilful defaulters whose businesses always pretend to be in the red despite the economy's respectable growth. Sadly, growth is showing signs of a premature slowdown, justifying the clamours of economists who advocate bringing a semblance of law and ethics into business.

The great 18th-century economist Adam Smith once wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice." Smith was so sure about his articulation that he asserted that all the rest would be brought about by the natural course of things once justice is safeguarded. The history of all developed countries has evidently proven that organised financial corruption and economic prosperity can never be siblings. They are mutually exclusive and many politicians in power seem to have brushed the trade-off aside for a game of personal wealth-making and very short-term interest.

Farashuddin's worry in this regard is quite explicit although he seems to be afraid of being mistreated if he speaks against the financial hooligans pampered by power. He literarily resorted to the poignant lines of Rabindranath Tagore—Morite chahina ami sundoro bhubone (I don't want to die in this beautiful world). So subtle was his sense of melancholy and humour.

The truth hidden under his humour points out that if high-scale bank looters are pardoned so easily, the banking sector's future must be cancerous, suggesting the emergence of further plunderers under the political coddling of the regime. His warning rightly echoes that of Dr Wahiduddin Mahmud, former economic adviser to the caretaker government, who allegorically labels the default culture as the rotten heart of the nation.

Some critics have recently labelled Dr Farashuddin's outburst at the seminar of the Economic Reporters' Forum (ERF) as his personal frustration for not being placed in a policymaking position by the regime. This is a defective interpretation of Farashuddin's standpoint. First, we need to judge whether he is statistically right about what he has said. Second, we need to check whether his recommendations don't serve him personally or his business. We get a "yes" in response to both these questions. His concern is that the family-based directorship proposal was passed at parliament without any resolution or debate. In fact, this law has turned many private banks into a mudir dokan—the single family-run petty shops sprawling in villages, fostering a perverse move of private banks from corporate structures to family dynasties.

The sneaky way of passing this family directorship law is the antithesis to the spirit of parliamentary democracy where we hope to see debates over economic policymaking. But there are many members of parliament who never utter a single word about anything during their tenure, while most of them are familiar with the art of accumulating personal wealth at magical speed. Thus, simply addressing the banking sector won't solve the current economic predicament. Parliament and the legal system must function better to make the economy as robust as it was before the pandemic.

Farashuddin is correct in pronouncing that some groups of people are taking bigger slices of the pizza—which we earned through independence. And hence, he is against the trend that brings more retired bureaucrats to politics. It will dampen the quality of bureaucratic services as we have already degraded the quality of our universities by infusing political enthusiasm. He is right in reiterating the unholy triangle of tax dodgers, bank defaulters, and money launderers. They are the same group of people who are dragging the economy to the cliff's edge, and waiting for the time to fly overseas with their trafficked fortunes.

This must be stopped for the sake of the nation where income inequality has been on an unbroken crescendo of unsustainability, defying any sensible records of peer nations. Putting a farmer in jail for defaulting on loans by Tk 1,000, while letting a bank looter sit beside government officials, signal a cancerous future for the financial industry, and Farashuddin's artistic portrayal of the injustice and asymmetry in this regard warrants serious attention from the government.

Dr Birupaksha Paul is professor of economics at the State University of New York at Cortland in the US.​

 

[Saif]

The concept of a public institution eludes our central bank

BB has recently restricted the journalists’ access for no reason in sight.

www.thedailystar.net

The concept of a public institution eludes our central bank

Illustration: Biplob Chakroborty

In the mid-1980s, military dictator HM Ershad banned BBC's journalistic operations in Bangladesh. In March 2022, the Taliban banned BBC's local language services in Afghanistan. It can thus be theorised that authoritarian rulers simply hate any journalistic investigations because the press is detrimental to their longevity. But for journalists' normal, professional access into a financial institution in Bangladesh to be barred is an untimely absurdity. It raises a question as to whether something is really wrong within Bangladesh Bank (BB) right now, given that the regulator is floundering in the theatrics of mergers and trying to convert rotten apples to fresh oranges by covering up multiple loopholes.

BB has recently restricted the journalists' access for no reason in sight. Of course, BB's policy restlessness in recent months surrounding default loans, the dollar's exchange rates, reserves, remittance, inflation, and mergers have drawn in more criticism than praise from the media. Meanwhile, journalists have been reporting BB's half-baked ideas and erratic steps. They are only doing their job, as they have been for so long. It is their noble duty to report any public or private sector wrongdoings so as to alert the nation. So what's the problem?

The BB governor has attempted to explain the decision as trying to protect some "top secrets" of the central bank. If the so-called top secrets aren't religiously private, he is supposed to share these with the public via the media. People have every right to know such information since the central bank is the regulator of banks which live and thrive on people's money. And the BB is not like police headquarters; it doesn't handle murder cases which may warrant confidentiality. The culprits BB might be dealing with are wilful defaulters who are at the root of plundering the financial sector and thus placing the economy on the cliff's edge. But even these cases shouldn't be kept secret. The BB governor is a custodian of the state's interests, not those of loan defaulters. Being a hundred percent transparent is the first point of his oath.

The culture of central banks addressing journalists has been there since the early 1990s. Economist Alan Blinder, the then vice-chair of the Federal Reserve System, championed the culture of making central banks more accessible for and accountable to the public. His campaign, "Fed listens," has been a paragon of how a central bank must ensure free flow of information. The journalists help establish communication between policymakers and the public. The current Fed chair Jeromee Powell regularly meets with journalists after every policy decision; so does the governor of the Bank of England, Andrew Bailey. The current president of the European Central Bank (ECB), Christine Lagarde, previously the chair and managing director of the International Monetary Fund (IMF), invites the press for question-and-answer sessions quite regularly. The ECB also welcomes public tours to improve the common understanding of how central banks work and what purposes they serve.

The IMF outlines four principles of communication by central banks. It asserts that communication should be clear, candid, and transparent. Second, communication should reach all segments of the population. Third, communication should take place regularly. Fourth, all economic agents should have equal access to the same information. Ben Bernanke, who chaired the Fed and won the economics Nobel Prize, made it clear that central bank governors are public servants, and it is their responsibility to provide the public with as much explanation of their decisions as possible. Former Reserve Bank of India governor Raghuram Rajan faced journalists quite confidently because he understood economics well and didn't fear being dethroned by any tycoon groups. None of those mentioned above resorted to using their spokesmen to justify their stances because the respective governments appointed them knowing that these leaders know how the economy functions and thus can speak for themselves. At any central bank, every information is public information, and hiding anything is equivalent to doing a disservice to the government.

The economy is facing high inflation and reserve depletion. The banking sector in particular is in its most appalling state, requiring constant checkups like a patient in the ICU. In such a situation, journalists are akin to those devices surrounding the patient which work tirelessly to report BB's financial symptoms to the public.

BB needs extensive interactions with journalists more than ever before, because journalists can read the public pulse and communicate with stakeholders efficiently. No other service can replicate the functions which the media carries out for the public. Journalists mustn't be seen as counterparties, nor are they enemies of state interests. BB should rather engage with journalists as well-wishers and counsellors in regards to policy steps. Had BB adopted this practice in early 2022 when the prevailing crises began to surface, the governor would have been regarded as a good policymaker by now. But BB's attitude towards journalists has recently been more bureaucratic than accommodative, and that is doing more harm than good.

Restricting journalists in the secretariat should in no way be a good example that is blindly replicated in an institution like BB or the Bangladesh Securities and Exchange Commission. These bodies deal with citizens' savings and investments and citizens have the right to inquire about what the custodians of their assets are doing with them at any point in time. Thus, preventing journalists from discharging their duties is unconstitutional and demeans the noble objectives of the Bangladesh Bank Order, 1972 which was framed under Bangabandhu's guidance after independence. BB must revise its approach to journalism by following global best practices and thus improving its knowledge base.

Dr Birupaksha Paul is a professor of economics at the State University of New York at Cortland in the US.​