[🇧🇩] Banking System in Bangladesh

[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.

www.thedailystar.net

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.

www.thedailystar.net

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

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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.​

 

[Saif]

How to choose a good bank

A good bank ensures quality of loans (assets) by selecting the right borrowers, sanctioning loans to various sectors in different sizes, and keeping collateral.

www.thedailystar.net

How to choose a good bank

Depositors looking to put money in banks often face the risk of selecting a bad bank. This is because often they don’t have complete information about the financial and other conditions of the banks. VISUAL:SALMAN SAKIB SHAHRYAR

Depositors looking to put money in banks often face the risk of selecting a bad bank. This is because often they don't have complete information about the financial and other conditions of the banks. For a safe and good banking experience, it is essential to recognise strong banks, which can be done in the following ways.

A good bank ensures quality of loans (assets) by selecting the right borrowers, sanctioning loans to various sectors in different sizes, and keeping collateral. It avoids credit concentration and aggressive lending to high-risk borrowers, and grants loans to those who have credit discipline. It is motivated by value-driven strategies rather than immediate performance-driven ones. A bank's performance can be measured by its loan quality: if it has a small amount of distressed assets, its quality is good, but a bank with huge distressed assets—which include non-performing, rescheduled, restructured and other loans stuck in money loan courts—is surely a bad one. Such a bank fails to be profitable because it has to maintain a provision against non-performing assets from its profits. A bank that has a non-performing loan (NPL) rate of less than five percent is a good bank in Bangladesh's context. Depositors should look at this rate.

There is a single-borrower exposure limit, indicating the maximum amount of loan that banks can grant to one borrower. A bank can sanction 25 percent of its capital at most to a single borrower. It can also make a large loan that's at least 10 percent of its capital. It should not extend such loans frequently because doing so creates a concentration risk. It also fails to construct a diversified portfolio with many large loans. In contrast, when a bank extends many small and medium loans, its portfolio is diversified, making a trade-off between risks and returns. Depositors should avoid banks that have high proportions of large loans.

Capital is a parameter that's used to understand banks' loss absorption capacity. A bank must have sufficient capital for solvency purposes. When the capital is adequate, it can absorb significant unforeseen losses. Any loss that arises mainly from credit, interest rate, liquidity, foreign exchange and/or price risks is adjusted against the capital. Hence, a bank must keep a minimum amount of capital against its risk-weighted assets. If it possesses more risky assets, its capital requirement is high. A sound bank also maintains additional capital rather than the minimum. It keeps some capital buffer to face the loss emerging from unfavourable economic conditions and adverse business cycle. Depositors must also look at the overall capital position of a bank.

Liquidity is the ease with which an asset can be converted into cash without affecting its market price. Liquidity risk is a sudden surge in liability withdrawals that may leave banks in a position of having to liquidate assets at a very short notice and low prices. It is one of the most significant risks that banks need to manage to keep the trust of their depositors. When a bank faces a liquidity problem, it generally borrows from the money market. But when it tends to borrow at high interest rates, that signals that the bank is at a serious liquidity risk. It may also tend to collect deposits at abnormally high interest rates. As a last resort, it may borrow from Bangladesh Bank (BB). Sometimes, it may even need special liquidity support from BB to continue its operations.

Depositors should also know whether a bank can maintain regulatory reserves required by the central bank. Every bank has to maintain certain statutory reserves in cash and other assets. Failure to maintain the reserves leads to punitive action. Recently, several banks have failed to maintain these reserves, for which they were fined.

In a good bank, there are checks and balances between the board of directors and the top management where the former ensures that the bank's affairs are carried out competently, ethically, and in accordance with the law and policies; it also ensures that quality services are provided. The latter have to supervise all operations of a bank. There must be a fair participation of all directors in policymaking. The management must have freedom in its operations and the right to say "no" to the board of directors.

However, sometimes a bank is dominated by the chairpersons or directors from the same family. The chairperson makes major decisions on issues such as lending, recruitment, and large purchase. This type of governance puts the bank at a high risk. The banks that are currently facing problems with liquidity, NPLs, capital and provision were largely dominated by their respective chairpersons or a few influential directors. We have seen reports in the media about some banks afflicted with this problem. Depositors must be careful about putting their money in these banks.

The BB discloses information indicating the quality of banks. Recently, it categorised banks in red, yellow and green zones based on their performances. Banks in the green zone are safe, while those in the red zone are risky. The central bank also runs stress testing on banks to better understand their financial position and risks. The test shows the shock absorption capacity of banks under different adverse conditions. A good bank is highly shock-absorbent.

The BB analyses a bank's conditions by the CAMELS (capital adequacy, assets, management capability, earnings, liquidity and sensitivity) rating. Although this rating is not made public, every bank knows its own rating. In addition, banks are also rated by external credit assessment institutions every year. When a bank attains a good rating, it is advertised in newspapers. This rating is an important indicator of performance.

A good bank is also consistent in making profit; it declares a certain percentage of dividends every year for its shareholders and retains a portion of its profit to increase capital base and expand business. Its share price does not change abruptly. A good bank earns a decent return on assets and equity. It has respectable earnings per share, and so is its net asset value. The financial statements of banks contain these sets of information which depositors can look through.

Depositors should not necessarily make all these analyses by themselves. Most analyses are readily available in annual reports. They can depend on media reports too. If they are confused while selecting a bank, they can simply talk to bankers and experts. What's most important is that they need to be conscious about choosing a good bank. Doing so can reduce the risk of losing money.

Dr Md Main Uddin is professor and former chairman of the Department of Banking and Insurance at the University of Dhaka.​

 

[Saif]

Islamic banking to be off limits to regular banks

A bank will not be able to do Islamic banking business along with conventional banking at the same time, according to the draft ‘Islami Bank Company Act-2024’, as the central bank looks to level the playing field for Shariah-based banks.

www.thedailystar.net

Islamic banking to be off limits to regular banks
Draft law aims at levelling the playing field

A bank will not be able to do Islamic banking business along with conventional banking at the same time, according to the draft 'Islami Bank Company Act-2024', as the central bank looks to level the playing field for Shariah-based banks.

As of June, 30 conventional banks provide Islamic banking services through their 33 branches and 688 windows.

The banks will have to change their banking business model or form a subsidiary company to provide Islamic banking services when the law is effective.

"If the conventional banks are allowed to do Islamic banking, then there will not be a level playing field as the Islamic banks do not have the opportunity to do conventional banking," said Mohammad Shahriar Siddiqui, the head of the committee that prepared the draft.

Globally, this is the practice but, in some countries, there are provisions to open an Islamic banking window, he said.

The basic difference between conventional banking and Islamic banking is interest. Conventional banks are offering and taking interest by providing banking services but Shariah-based banks cannot. Shariah banks can share profits.

The need for the draft came as Shariah-based banking, which began in Bangladesh in 1983, is expanding rapidly without any law or effective guidelines.

The Islamic banking sector accounts for 23.65 percent of the total assets in the banking sector, 26.23 percent in the case of deposits and 28.24 percent in investment as of June.

At present, there are 10 full-fledged Shariah-based banks, and some of them have been involved in irregularities and scams in recent years.

The committee has prepared the draft in accordance with the international best practices by reviewing the existing BB provisions for Shariah-based banks and the existing laws of Islamic banks in different countries, said Siddiqui, also the assistant spokesperson of BB.

The banking regulator is now taking opinions on the draft law, which was approved by the BB governor on October 9.

The 30 conventional banks that are currently offering Islamic banking will have to inform the central bank in writing about their preferred type of banking within six months of the effective date of the act.

The banks will then get three years to become full-fledged Islamic lenders or wrap up their Shariah-based operations. In special cases, the tenure may be extended by a year.

However, the banks can continue the other type of banking business until the liabilities are not paid or the term for the deposits or loans has expired.

All Islamic banking companies licensed under the act will have to use the word Islamic in their name.

An Islamic banking company will not be able to purchase controlling shares in any existing company for the purpose of forming a subsidiary company or converting it into a subsidiary company for any purpose other than providing Islamic banking services.

The central bank will form a central Shariah advisory council to fulfil the adjective of the Act.

The Islamic bank companies will not be involved in any business where Shariah is not allowed, it said.

"You can say that we welcome the law, which is needed. But this is not the right time to impose a bar on conventional banks to do Islamic banking," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

The financial health of Shariah-based banks save for two or three has deteriorated.

"Amid this situation, the customers of conventional banks (Shariah branches or windows) will not find any suitable alternative if the bar was imposed in the law. The customers will be impacted."

Now, the Islamic banking branches and windows are doing better than the full-fledged Islamic banks, he said.

"If we can manage the balance sheet separately then there is no problem to do Islamic banking," he said, adding that foreign banks like Standard Chartered are doing both conventional banking and Islamic banking.

The guidelines and supervision are more important than the bar, said Rahman, also the former chairman of the Association of Bankers Bangladesh.

Conventional banks in Bangladesh opened Islamic banking branches and windows when they saw that there was a huge possibility for making high profits and attracting clients, said Md Main Uddin, professor and former chairman of the department of banking and insurance at Dhaka University.

If the law is passed, including those clauses, then the lenders will concentrate their business in specialised areas and their investment will also increase, which is primarily a positive thing, he said.

The barrier should not be imposed for a long time, he said, adding that the service quality and competition will increase when there will be no barrier.

There is a possibility of the service quality deteriorating if there is no competition.

Some banks can come under the merger and acquisition or liquidation process as there are so many banks in the country considering the size of the economy, he added.​

 

[Saif]

Islami Bank: Tk 120m gift allocation also vanishes into thin air

The bank spent around Tk 120 million on two fictitious purchases between August and October last year

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Islami Bank: Tk 120m gift allocation also vanishes into thin air
Shanaullah Sakib
Dhaka
Updated: 09 Nov 2024, 13: 27

Islami Bank: Tk 120m gift allocation also vanishes into thin air

When different financial irregularities came to light in 2023, Islami Bank plunged into a liquidity crisis. The authorities took special initiative to boost deposit collection and set individual targets for officials.

Later, the board of directors decided to reward 13,500 successful officers with suit pieces. No officials received any suit piece till date, but the allocation – Tk 63 million – has already been spent.

In the same year, Islami Bank took an initiative to boost remittance to tackle the dollar crisis. It decided to purchase 100,000 umbrellas to give to top remitters. No umbrellas were ever provided to the bank, but Tk 55 million has been withdrawn on this purpose.

The bank spent around Tk 120 million on two fictitious purchases between August and October last year, according to internal documents. However, the real beneficiaries of the funds remain untraced.

The funds for the suit fabric were funneled through a businessman’s account in Chattogram and then transferred to three other accounts on the same day. The total amount was withdrawn immediately. Thus, the beneficiaries kept themselves out of sight.

Where did the money go?

Islami Bank, in a board meeting on 26 July 2023, decided to reward a total of 13,522 officials with suit fabric. Its client Belmonte Fabrics was awarded the order.

On 29 August, invoices and bills were submitted on behalf of Belmonte, though no fabric was delivered in reality. Despite being aware of the issue, the bank’s chief financial officer, Farid Uddin, requested authorisation to process the payment, while managing director Mohammed Monirul Moula approved it immediately.

According to records, Islami Bank transferred an amount of Tk 63.5 million to the client’s account on 30 August. On the same day, the fund was withdrawn from Belmonte's account with two cheques.

Belmonte owes nearly Tk 500 million to the Elephant Road branch of Islami Bank, and with a signed cheques submitted as security. When a loan defaults, the bank uses the cheque to file a case. A bank official said the amount was withdrawn using two security cheques of Belmonte.

In this regard, the managing director of Belmonte, Mohammad Badsha, said, “We received an order to supply suit fabric. As far as I recall, the order was never delivered. We have around Tk 500 million in loans at the bank, and security cheques are submitted against it. The funds might be withdrawn using those cheques.”

According to documents, a total of Tk 60 million – Tk 40 million and Tk 20 million in two phases – was deposited in cash from the Elephant Road branch to Masud Fish Processing and Ice Cream Limited of the Khatunganj branch in Chattogram. The entire amount was withdrawn from the branch through three cheques on the same day.

Masud Fish is an old client of Islami Bank and has a loan of Tk 500 million from the Khatunganj branch. It also submitted signed cheques for security.

Ashraf Hossain Masud, managing director of Masud Fish, claimed to have no connection with S Alam Group. “Though we are from Patiya, we have no relations with S Alam Group. Upon a request from the Khatunganj branch manager and second officer, I allowed them to use my account. Now, I have understood that it was a mistake to allow them to use my account and three cheques.”

He also said that they have been a client of the bank since 1988-89, but faced non-cooperation from the bank during the last few years. Hence, he permitted the bank to use his account, in the face of pressure.

During all these transactions, Islami Bank was under the control of Chattogram-based S Alam Group, led by Saiful Alam. His personal secretary and some other close associates were in leading positions in the bank, including the position of deputy managing director. Officials said the particular officers were engaged in clearing the fund.

Allocation for umbrellas

In its 329th board meeting on 20 September last year, the bank approved the purchase of 100,000 umbrellas and awarded the contract to Express Communications. It submitted invoices and bills on 10 October, without delivery of the umbrellas.

CFO Farid Uddin requested the funds, and MD Mohammed Monirul Moula approved it. Later, the bank issued a pay order of Tk 55 million to Express Communications, and it was cashed immediately.

Deepak Ghosh, owner of Express Communications, said, “I had a business partner named Abul Khair. He handled the delivery process of the gifts to the bank. However, he has no longer been with us for the last six to seven months.”

When asked about the issue, Abul Khair said, “I have no idea about the issue.”

The managing director of Islami Bank, MD Mohammed Monirul Moula, could not be reached for comment, while the central bank said a forensic audit could reveal the real beneficiaries of these irregularities in the future.​

 

[Saif]

Bangladesh Bank restructures board

Bangladesh Bank (BB) has restructured its Board of Directors by adding three new members. The development came through a board meeting held on Sunday at the BB headquarters in the city, said Husne Ara Shikha, BB Executive Director and spokesperson, after the meeting. The three new directors are F

thefinancialexpress.com.bd

Bangladesh Bank restructures board
BSS
Published :
Nov 10, 2024 20:51
Updated :
Nov 10, 2024 20:51

Bangladesh Bank (BB) has restructured its Board of Directors by adding three new members.

The development came through a board meeting held on Sunday at the BB headquarters in the city, said Husne Ara Shikha, BB Executive Director and spokesperson, after the meeting.

The three new directors are Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), Md Habibur Rahman, deputy governor of Bangladesh Bank, and Nazma Mubarek, the secretary of the Financial Institutions Division.

Shikha said today’s board meeting also set and passed the area of responsibility of the six-member taskforce which was formed back in September to conduct reform works in the banking sector.

The central bank spokesperson said the board today was also formally briefed about the writ petition regarding the Beximco Group.​

 

[Saif]

Banking sector needs drastic reforms to restore trust: BB governor

Bangladesh Bank (BB) Governor Dr Ahsan H Mansur has said that the banking sector requires drastic reforms, describing it as the backbone of the financial sector. Speaking as the chief guest at the 'Mastercard Excellence Awards 2024' held at a hotel on Saturday evening, the governor acknowledg

thefinancialexpress.com.bd

Banking sector needs drastic reforms to restore trust: BB governor
UNB
Published :
Nov 16, 2024 21:54
Updated :
Nov 16, 2024 21:54

Bangladesh Bank (BB) Governor Dr Ahsan H Mansur has said that the banking sector requires drastic reforms, describing it as the backbone of the financial sector.

Speaking as the chief guest at the 'Mastercard Excellence Awards 2024' held at a hotel on Saturday evening, the governor acknowledged past irregularities in the sector and the central bank's shortcomings in regulatory affairs.

He, however, assured that drastic reforms would be implemented to ensure fairness and restore trust. "Irregularities happened in banks for a long period with state sponsors. It will take time to restore trust in our banking system domestically and globally," Dr Mansur said.

He said that banking sector reforms alone would not be enough and highlighted the need for other state organs and political commitment to achieve a robust financial system.

Dr Mansur dismissed fears of Bangladesh facing a crisis like Sri Lanka's, affirming that there are no severe risks in the banking sector at present. "The government is confident in restoring good governance in the financial sector," he added.

Trishita Maula, Acting Deputy Chief of Mission at the US Embassy in Dhaka, attended the event. CEOs of several leading banks, fintech companies, and merchants were also present.

The Mastercard Excellence Awards 2024 recognised 26 organisations for their contributions to building a sustainable digital economy and advancing financial inclusion.

Mastercard, which began its operations in Bangladesh in 1991 and became the first global payments operator to establish a local presence in 2013, continues to play a pivotal role in strengthening the country's digital ecosystem.

Over the years, the company has collaborated with government and private stakeholders to transform the payments industry with its world-class products and solutions.

Syed Mohammad Kamal, Country Manager for Bangladesh at Mastercard, said, "Mastercard remains committed to digital innovation and fostering inclusive growth in the country. The company is pleased to collaborate with leading banks, fintechs, and merchants as partners."​

 

[Saif]

Default loans soar to Tk 2.85 trillion, actual scenario emerges

Nearly 17 per cent of the loans disbursed by the banks in the country have become defaulted, which was 12.56 per cent at the end of June

en.prothomalo.com

Default loans soar to Tk 2.85 trillion, actual scenario emerges
Staff Correspondent
Dhaka
Updated: 17 Nov 2024, 20: 00

The volume of defaulted loans increased to Tk 284,977 crore (about Tk 2.85 trillion) at the end of September, with a humongous rise of bad loans by Tk 735.86 billion in the banking sector in three months.

This is the first time the information of defaulted loans became available since the fall of the government on 5 August, revealing the actual amount of the bad loans.

The money that was taken out from banks during the regime of Sheikh Hasina-led government of Bangladesh Awami League (AL) until it was ousted in the face of a student-people uprising, is now being identified as defaulted loans.

As a result, nearly 17 per cent of the loans disbursed by the banks in the country have become defaulted, which was 12.56 per cent at the end of June.

According to the Bangladesh Bank (BB), the amount of defaulted loans at that time was just over Tk 2.11 trillion.

When the Bangladesh Awami League formed the government in 2009, the amount of defaulted loans in the country was Tk 224.81 billion. Since then the bad loan has seen a steep rise in the last 15 and a half years.

The economists, for a long time, have been alleging that under the state patronage, a huge amount of the money has been looted from the banks in the name of defaulted loans and laundered abroad.

Even different types of initiatives were taken so that the banks could disburse a huge amount of money as loans to the influential people and show the amount less in the banks’ ledger books.

The central bank, the Bangladesh Bank, however, has shifted its stance from that policy.

According to the regulatory body, the role of private banks was more than the state-owned banks in the rise of defaulted loans from June to September.

The bad loans increased by Tk 236.28 billion at the state-owned banks against the amount of Tk 498.85 billion at private banks in the three months.

The six Islamic banks that were under the control of the controversial S Alam Group have started revealing the actual state of their financial conditions following the fall of the government.

Besides, former prime minister Sheikh Hasina’s adviser Salman F Rahman’s Beximco Group, Bashundhara Group and S Alam and a few other large business conglomerates have become defaulted, leading to exacerbating the situation.

The people related to the banking sector, however, think the actual amount of defaulted loans is far more than the amount published.

They pointed out that the central bank could not count the loans written off and on the list of stay orders due to the court order.

Top officials of the central bank think the actual scenario would be revealed more in the coming days due to the steps the interim government has taken for reforming the banking sector.​