The governors of Bangladesh Bank over the past 15 years have helped vested interest groups by either ignoring existing rules or altering laws to benefit them, said the Centre for Policy Dialogue (CPD) on Monday.
The think tank also identified the appointment of former government officials as governor and deputy governor at the central bank as a violation of the Bangladesh Bank Act.
“The high officials of the Bangladesh Bank worked for vested interest groups and did not make independent decisions on operations and monetary policy formulation,” said Dr. Fahmida Khatun, executive director of the CPD.
She made these remarks while presenting a keynote address at a media briefing titled “Bringing Discipline in the Banking Sector: What Should Be Done Immediately,” organised by the CPD at its office.
Fahmida Khatun said the unethical facilities provided by the Bangladesh Bank to certain business groups have damaged public confidence in the banking system and posed a risk of economic uncertainty.
She noted that while the banking sector had played a significant role in developing the business community after independence, its focus has shifted towards individual development rather than business development or job creation.
The banking sector is increasingly diverging from regulatory compliance and is becoming weaker, Fahmida Khatun added.
The CPD urged the interim government to take immediate measures to ensure institutional, regulatory, legal, and data-related reforms in the banking sector.
She mentioned that while reforms have been recommended by the CPD and civil society, previous governments ignored these recommendations, as they were more interested in supporting certain individuals rather than ensuring sector development.
The CPD recommended strengthening commercial banks, ensuring the independence of the Bangladesh Bank, creating a conducive legal and judicial environment, and ensuring the integrity and availability of timely data.
The CPD also recommended formulating a banking reform plan for the next three months to identify problems in the banking system, understand the causes, and propose solutions.
She stressed the need to ensure the independence of the Bangladesh Bank in accordance with the Bangladesh Bank Amendment Bill.
The CPD called for the immediate dissolution of the Financial Institutions Division (FID) of the Ministry of Finance, citing that its mandate is directly contradictory to the Bangladesh Bank Order.
Fahmida also called for an investigation into all current and former FID officials for any wrongdoing related to controlling the Bangladesh Bank.
The CPD recommended permanently stopping repeated rescheduling and write-offs of non-performing loans (NPLs), noting that only 33% of first-time rescheduled loans and 30% of third-time rescheduled loans were recovered during 2011–2014.
Fahmida emphasised the need to strengthen the Internal Control and Compliance Departments of commercial banks to prevent loan scams, such as the Hallmark case.
The central bank should appoint firm administrators to oversee the operations of troubled banks that cannot comply with BASEL III requirements, she added.
Fahmida revealed that as many as 11 banks were unable to meet the minimum BASEL III requirements in 2021.
She also recommended closing down banks on the verge of collapse and replacing the management and board of directors of poorly performing banks.
Fahmida pointed out that the finance ministry influences the appointment of the board of directors of state-owned commercial banks, but such appointments should be depoliticised and based solely on qualifications and experience.
She further recommended ensuring accountability of bank officials and directors for loan scams, stating that Tk 92,261 crore, equivalent to 12% of the national budget or 2% of GDP, was embezzled in 24 major banking scams from 2008 to 2023.
“All individuals involved in fraudulent activities should be investigated and brought to justice,” said Fahmida.
