WHEN the banking sector is mired in a horde of problems — the absence of democratic governance that has encouraged corruption and irregularities, a soaring amount of bad loans that has weakened the economy and an absence of political will that has stopped a way out of the trouble — experts say that the rise of oligarchy has been at the heart of all this. Speakers at a dialogue, What lies ahead for the banking sector in Bangladesh?, that the Centre for Policy Dialogue held in Dhaka on May 23, largely blame oligarchy that has reared its ugly head in the banking sector, leading to a worrying decline in governance, transparency and accountability. The executive director of the Centre for Policy Dialogue says that oligarchs in a crony capitalism have used banks as a tool to meet their goals and as oligarchs enjoy a strong political clout, they can influence policies and policy decisions to protect their interests and expand their reach to their end. The influence of oligarchy has held off competition, undermining democratic governance in the sector. The amount of distressed loans reached Tk 3,779.22 billion by 2022 and about Tk 1,770 billion has been stuck because of cases with the financial loans court which makes the amount of bad loans much higher.
The S Alam Group, for an example, now controls five of the 10 Islamic banks and the banks are in a state far worse now than they were in before the change of their ownership. A single group controlling five of the banks is also a good example of bad governance that has added to the irregularities in the banking sector. And, such a decline has only eroded people’s trust and confidence. The speakers at the programme also say that the approval of loans, their rescheduling and write-offs are done arbitrarily. The state of the banking sector has reached such a pass that depositor’s confidence has started waning as interest rates on bank deposits have failed to keep pace with inflation. This is said to have resulted in a negative real deposit rate, reaching nearly 5 per cent. The speakers also list the practice of issuing bank licences on political considerations rather than on assessments as a major reason for such a deplorable situation. As for independent directors of banks, a speaker says that the directors are not truly independent and they are, rather, dependent on the board of directors. All that they come up with is that the central bank is either not working independently because of external pressure or it is reluctant at democratic governance. A former central bank governor says that decisions are now made in coordination with people enjoying political and moneyed clout which also undermines the autonomy of the Bangladesh Bank.
Experts think that a monetary policy of contraction and an increase in interest rates have failed to fix the ailing economy as the government has failed to put in the required sincerity and effect structural reforms that are needed to save the banking sector. The government must, in such a situation, have the political will to right the wrongs that plague the banking sector.
