FINANCE Minister AMA Muhith has recommended Bangladesh Bank to start merger of problem banks, but experts fear that such a move would not stop the rot the country’s banking sector is facing.
On December 28, Muhith wrote a letter to BB Governor Fazle Kabir pointing out that it was the most suitable time for the central bank to merge some of the banks ‘now in a pathetic state’ because of errant entrepreneurs, directors and infighting among many directors, as per a report of a local daily.
But experts, including former BB Governor Salehuddin Ahmed, said that stopping political interference and restoration of good governance could be more effective than the proposed merger. Though Muhith did not name the problem banks, the central bank in a report to a Parliamentary Body on October 29 said that Farmers Bank Limited and NRB Commercial Bank were in trouble and put the whole banking sector at risk.
Ignoring earlier warnings from experts, Farmers Bank and NRB Commercial Bank along with seven other new banks were given banking company licences in 2012-13 by the government allegedly on political considerations. Farmers Bank, established by former Home Minister Muhiuddin Khan Alamgir, has failed to keep adequate liquidity against the backdrop of growing bad loans while classified loans of the NRB Commercial Bank, operated by Sylhet-origin expatriate businessmen, rose to over Tk 191 crore in 2017 from only Tk 19.3 crore in 2016.
Among state-owned banks, BASIC Bank is in the most deplorable condition because of shady loans of over Tk 6,000 crore offered by previous board of directors led by controversial chairman Sheikh Abdul Hye Bachchu from 2009 to 2014. Once a profit making bank BASIC Bank now faces severe liquidity shortage despite receiving more than Tk 2,700 crore as bailout fund from the government exchequer in 2014-16.
Muhith in his letter blamed entrepreneur directors, in-fighting among directors and changeover of bank ownership through hostile takeover for abysmal condition of some of the banks in the crowded banking sector with the presence of 57 banks. He forecasted that mergers of banks were ‘imminent’ and the central bank should ‘float the primary initiative’.
Merging bad banks is like locking the stable after the horses have been stolen – it solves nothing. Merging problematic banks will not magically root out their inept and malfeasant officers who were responsible for giving out the loans in the first place. Rather the government should stop political interference in the sector for its systemic improvements. It must be remembered that the Chairman of BASIC Bank was appointed by the government and his tenure was extended even though two directors of BASIC Bank urged the government to dismiss him — but no action was taken.
The current political move to award banking licenses is wrong as many bankers are saying that the entry of new banks would bring more harm to the sector. What is needed now is good governance and depoliticisation. Banking officials who are crooks in all but name should not be allowed to taint the sector by their presence. Passing laws which strengthen the power of families to run banks is yet another way to get banks in the red through the possibility of financial misconduct. All of this must end. But not under this government.
