THE sorry state of the banking sector, which is crippled by alarmingly high non-performing loans and lingering governance crises, falls largely, if not squarely, on the Bangladesh Bank, which significantly lost its autonomy and suffered debilitating political interference during the authoritarian Awami League regime. A recent report prepared by an 11-member task force and presented to the chief adviser sheds light on the reasons why the central bank failed to deliver. While the Awami League government continued to encroach on the autonomy of the central bank through political appointments of governors and deputy governors and through policies that directly contradicted economic rationale, the report says that the establishment of the Financial Institutions Division under the ministry of finance significantly eroded the independence of the central bank. The establishment of the FID in 2010, the report at hand states, contradicted the Bangladesh Bank (Amendment) Act, 2003 and introduced dual regulation that resulted in serious governance failures. The granting of authority of administration and interpretation of the Bangladesh Bank Order, 1972, and the orders relating to specialised banks and the state-owned banks, insurance and financial institutions to the FID has undermined Bangladesh Bank鈥檚 sovereignty.
Through the FID, the ministry of finance effectively established its control over the central bank鈥檚 governance and took policies and decisions that directly contributed to a sharp deterioration of banking sector governance. Not only appointments to the governing bodies of the banks, the government brazenly disregarded economic rationale and gave licences to nine banks in 2013. The government also helped people and businesses with political clout take control of the banks and take out huge amounts in loans. To mention, the Chattogram-based S Alam Group took control of at least seven banks and took, as a recent report by the Bangladesh Financial Intelligence Unit reveals, a staggering Tk 2.25 lakh crore, or $16.6 billion, from these banks. Another business, Beximco Group, has allegedly withdrawn about Tk 50,000 crore from different banks and non-bank financial institutions. As a result of injudicious loan sanctioning and financial crimes in the banking sector, non-performing loans surged from only Tk 22,240 crore in June 2009 to Tk 2,84,977 crore in September 2024. The Awami League government, however, attempted to manipulate the figures and offered one irrational concession after another to defaulters to hide the true state of the sector, which continued to be downgraded by international rating agencies.
The government has many issues to address and substantial reforms to make to bring the banking sector back in shape. The government needs to strengthen loan sanctioning processes, depoliticise bank boards and enact legal reforms to address deep-rooted governance issues. In so doing, the government needs to remove the dual regulation of the Bangladesh Bank and the Financial Institutions Division and uphold the autonomy of the Bangladesh Bank.