OVER the past years Bangladesh Bank was never in full control of commercial banks and even its own activities from intervention by the Ministry of Finance and other government leaders who always wanted to influence its policies and action to their advantage. But the latest helplessness of the central bank, due to undue interference from above in controlling banks and other financial institutions has gone beyond all limits. The New Nation reported on Saturday that despite the recent refusal of the central bank to allow setting up two more banks amidst ongoing loans scandals and disorder in banking sector, the Finance Ministry has instructed Bangladesh Bank to start processing of two new licenses.
What is noticeable is that the government is under pressure to allow new banks on political consideration to party men although many private banks, which got license in the immediate past years are running aground. Economists and business leaders are opposed to any more banks but the government is helpless from internal political pressure. The central bank in turn is helpless to pressure from the government. Banks are easiest way of minting fortune by money laundering and loan frauds – this is what is the bigger picture in the banking sector in recent time. So powerful people are restive to set up new banks and the government will do what the powerful would want.
The Banking Company Act, 1991 empowered the central bank to regulate banking sector as an autonomous body but in reality, the government has taken over this autonomy establishing a Banking Division under the Ministry of Finance and giving it power over Bangladesh Bank. So the central bank is failing to function independently both due to bureaucratic and political pressure. In the words of a former deputy governor of Bangladesh Bank undue interference is hurting independence of the central bank and paving way to destruction of the banking sector. The sector is already overcrowded, in addition to manifolds irregularities and almost opens grabbing of bank money by bank owners and directors.
This sector is now open to high risks and manipulation under the amended law; which has empowered four members of a family to sit on the board. Depositors’ money is not safe any more while loan rescheduling has become a standard way of sidetracking repayment of bank loans in many cases. We must say banks and financial institutions provide the backbone of the national economy and any failure to run them properly is also bound to bring collapse to the system. We are already running state owned banks with regular recapitalization from budgetary resources. Recently, private banks are also asking the central bank for bailing them out. This is not time to allow more banks but to rein in the situation.
