Oligarchs have emerged in the banking sector, leading to a deterioration in governance, transparency, and accountability, which has created distrust among depositors, said Fahmida Khatun, the executive director of the Centre for Policy Dialogue.
A nexus has been created among bankers, businesses, and government officials, resulting in a significant weakening of the sector, leaving ordinary people suffering, she said.
She made these remarks while presenting the keynote paper in a dialogue organised by the CPD at the Lakeshore Hotel in Gulshan, Dhaka, on Thursday, titled 鈥榃hat Lies Ahead for the Banking Sector in Bangladesh?鈥�
She observed that the financial oligarchy under crony capitalism was using banks as tools to fulfil their goals.
The term oligarch generally refers to small individuals who hold significant power and influence within a country or organisation.
The oligarchs have strong political connections and may influence government policies and decisions to protect and expand their interests, Fahmida said.
She noted that oligarchs鈥� influence left competition to disappear, undermining good governance in the sector.
When financial capital becomes concentrated in the hands of a few, monopolies extract supernormal profits, causing suffering for the general population, she said.
She mentioned that before the ownership change of Islami Bank in December 2016, Shariah-based banks had excess liquidity of Tk 10,112 crore. After the ownership change of the bank, Islamic banks suffered a liquidity shortfall of Tk 2,218 crore in January 2023.
Five of the 10 Islamic banks 鈥� controlled by S Alam Group 鈥� have been plagued by poor governance since the ownership change, she said, referring to an example of oligarchy.
Fahmida pointed out that the financial health of the banking sector had been declining for decades.
It has deteriorated further in recent years, leading to an erosion of public trust and confidence.
Additionally, Fahmida criticised the practice of issuing bank licences based on political considerations rather than thorough assessments.
Financial analyst Zahed Ur Rahman explained that oligarchs were not only benefiting from unethical advantages but also taking advantage of rules and regulations crafted to favour them.
鈥業t is deeply troubling,鈥� he said.
He pointed out that borrowers who rescheduled loans were not breaking any rules because the rules themselves were designed to provide such opportunities.
In her keynote paper, Fahmida highlighted that distressed loans reached Tk 3,77,922 crore by the end of 2022.
Additionally, Tk 1,77,000 crore was stuck in money loan court cases, making the total amount of bad loans even higher.
Loan approvals, rescheduling, and write-offs are being done arbitrarily, she said.
The central bank is not working independently due to external pressures or its own reluctance.
鈥楾his situation needs to be improved,鈥� she said.
Fahmida highlighted the absence of a culture allowing banks to declare bankruptcy, which she said acts as a barrier to market-driven efficiency.
She also raised concerns about depositors鈥� losses, as interest rates on bank deposits failed to keep pace with inflation, resulting in a negative real deposit rate reaching nearly 5 per cent.
Fahmida stressed the need for massive due diligence and structural reforms in the banking sector, while also highlighting the need for strong political determination for effective implementation of rules.
Without this determination, she warned, the sector鈥檚 financial health cannot be restored.
Former Bangladesh Bank governor Salehuddin Ahmed criticised the central bank, stating that decisions are now made in coordination with politicians and businessmen, which undermines its autonomy.
He likened Bangladesh Bank to a 鈥榗ooperative society鈥� and emphasised the need for it to assert its authority.
Salehuddin said that the delay in adjusting interest rates and the dollar rate had put pressure on the public.聽
He highlighted the importance of increasing lending to small and medium enterprises and agriculture for sustainable growth, stating that merely tightening monetary policy or raising interest rates would not suffice.
Mahbubur Rahman, president of the International Chamber of Commerce, raised concerns about governance issues in Bangladesh鈥檚 banking sector.
He pointed out the concentration of control, noting that one individual was controlling 5鈥�6 Islamic banks.
The same individual has now been given control of the National Bank, which he believes goes against the principles of good governance.
Mahbubur questioned the central bank鈥檚 role in addressing these governance issues.
He criticised the situation, where the chairman of Basic Bank allegedly took millions but remained untouchable, questioning how good governance could prevail under such circumstances.
Regarding the appointment of independent directors in banks, Mahbubur expressed scepticism, stating that these directors are not truly independent, but rather dependent on the board of directors.
Former planning minister MA Mannan expressed concerns about the banking sector, stating that the general public was worried.
He emphasised the need for the regulator to speak openly and transparently. Mannan also opposed any restrictions on the free flow of information.
Mannan observed that there was not enough study and research done on the bank merger issue. He called for coordination and support from all political parties on national issues, indicating the importance of a unified approach to address challenges in the banking sector.
