NINE new banks, which began business more than two years ago, are still facing difficulties in opening their accounts with foreign banks to do foreign exchange business and international trade transactions due to increasingly strict banking regulation in the world, as per a report published in a local daily on Sunday. The nine banks-NBR Commercial Bank, South Bangla Agricultural and Commercial Bank, Meghna Bank, Midland Bank, Farmers’ Bank, Union Bank, NRB Bank, NRB Global Bank and Modhumoti Bank Limited — were granted license when banking sector was considered in volatile situation in terms of superfluous liquidity and non-performing loans and the new banks have further deepened the crisis. These banks are commonly known as ‘political generation’ banks because of the political linage of the promoters. They also lack proper capitalization and financial strength. Ignoring World Bank and IMF suggestions, the government awarded banking licenses to its people considering only political obedience by overlooking weaknesses. Instead of introducing state-of-the-art technology and skill management, the banks made unhealthy competition in the sector. Two years is enough to ask why not the banks go for merge.
Every domestic bank has to open special account with foreign banks called ‘nostro account’ to do business in foreign exchange, and to carry out international trade transactions or opening letter of credit. This account also gives a bank a line of credit and overdraft protection when needed. Most of the local banks, except the nine new ones, have their own accounts either with Standard Chartered, HSBC or Citibank NA. These three foreign banks, which have their operations across the world, have declined to open nostro accounts for these nine new banks due to their incapacity in maintaining strict rules of banking under international protocol.
America and Europe have been forced to exercise extreme caution and ensure strong compliance set by their respective governments. Compliance issues in banks have become so important in the US that a Bangladeshi bank has to submit all its information, including profile and history of their directors, to open a nostro account with them. Report said only UAE-based Mashreq Bank is helping these new banks run their international trade transaction business. It was said that the banks would bring the unbanked people under the banking facility but the expected successes is still faraway.
While banking sector is struggling to do business as new investment has almost stopped, political impasse is yet to overcome, and the sector itself mired with excessive liquidity, non-performing loan burden, giving license to new entity was puzzling. As remedy, the new banks should be run professionally. Then should invest more in infrastructure development, open branches in rural areas and earn people’s confidence.
