Dr. Atiur Rahman
Governor, Bangladesh Bank :
(From previous issue)
The rapidly digitized banking enabled ultra-pacing mobile financial services will encourage the women more to participate in the financial services narrowing the gender disparity down since it may not even require their physical presence in the financial institutions to receive financial services. BB is active in spearheading initiatives of putting in place and upgrading countrywide connectivity backbone for the interbank settlements infrastructure; individual banks will need to be correspondingly proactive in installing and upgrading their own IT platforms in line with rapidly growing and evolving needs. With the progress already achieved in online interbank settlements and in mobile telephony, banks can and should now move fast in expanding mobile phone/smart card based banking services reaching out to new depositor and borrower customers in rural and migratory urban populations.
The imminent wide-advent of digital transaction by the virtue of quantum drive in paperless e-banking entails IT related various risks like viruses, hackers, natural disasters, operational errors, fraudulent activities and other threats from cyber crimes; so, the service providers should have the pragmatic understanding of IT system monitoring and risk based auditing to encounter IT related intrusion minimizing the residual risk at most to insulate the financial transaction from IT vulnerabilities since a single mishap may create devastating effect on the entire financial system. You will be glad to know that to strengthen the supervisory capacities of its officials BB has already embarked on intensive training courses on the Cyber Security and IT Risk Management to shield the financial stability from toxicities of IT risks including cyber crimes, failures and vulnerabilities.
Apart from the aforementioned glimpses of the financial sector’s strengths, the unfinished agenda on the yet-to-do list is also pretty long, with challenges demanding wholehearted commitment and engagement of sustained corrective efforts.
Lending resources of banks continue being channeled largely to well off borrowers, often with insufficient diversification and inappropriate asset-liability maturity mismatches. Corporate governance weaknesses linger in many banks, allowing dominant equity holders to manipulate credit access, credit appraisal and internal control processes to their own advantage. Boards and senior managements fixated mainly on quick short term gains tend to get tempted towards speculative playing up of market volatility, heightening destabilization risks harmful for longer term institutional soundness and viability. Myopic vision and focus on immediate gains deprives bank itself of future earning opportunities from cultivating new customer bases in large population segments of small means (the so called ‘bottom of the pyramid’), besides failing to fulfill an important corporate social responsibility obligation of combating inequity and poverty in the society they profit from.
The first step in overcoming these deficiencies and weaknesses and gearing up for attaining excellence in banking will be of properly orienting the institutional goals and objectives, shifting focus away from quick high gains from potentially destabilizing speculative activities towards prospects of stable longer term earning income streams from financing productive and socially responsible economic activities, including those of micro and small enterprises of the poor. BB’s guidance circulars on Corporate Social Responsibility and financial inclusion drives are intended to steer our banking sector out of this weakness. Pursuit of excellence in corporate governance will follow next; requiring adherence to proper credit appraisal, risk management and internal control processes in letter and spirit, free of vested interest influences of dominant director groups or colluding senior management functionaries. BB expects the banks to adopt and adhere to higher risk management, corporate governance and risk management standards than the minimum regulatory requirement.
Excellence in banking services will require quick attention to and remedy of customer grievances. As you all know, BB has accorded high priority to consumer interest protection concerns in banking services. Banks will need to accord the same high priority to this in their own strategic plans, putting in place processes and access channels like help desks; and above all, sensitizing bank personnel to respond properly and swiftly to customer grievance concerns.
In our financial system, access of businesses and households to medium and longer term financing is inadequate. Let alone long gestation large infrastructure projects, even modest projects like hospitals and hotels needing financing of ten years or longer tenor usually have to make do with five to seven year tenors at most, leaving themselves exposed to cash flow difficulties going forward. Outstanding industrial term loans are mostly medium rather than long term. Long term housing finance needs of households are likewise insufficiently met, much of the outstanding housing loans being medium rather than long term.
(To be continued)
