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TIB: Bangladesh Bank now ineffective in controlling defaulted loans

  • Published at 01:10 pm September 22nd, 2020
loan default
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A group of looters has taken the government as hostage, Iftekharuzzaman said

The Bangladesh Bank (BB) became an ineffective institution with regards to controlling defaults loans, TIB Executive Director Iftekharuzzaman said on Tuesday.

Regulation and supervision authority of the BB on controlling defaulted loans was now only in name, he said during a virtual press conference.

The media briefing was arranged on releasing a research paper, titled “Banking Sector Supervision and Default loans Control: Good governance problem of Bangladesh Bank and way to overcome.”

The task of reducing stressed loans from the banking sector was not being carried out  effectively by the central bank, said TIB executive director. 

Iftekharuzzaman said, “We have noticed that general people’s deposits in banks are being used as personal property of some people.  On the other hand, bank directors, regulator and the government are giving opportunities to defaulters”.

While it was the responsibility of the government to protect the interests of bank depositors, but it was patronizing money launderers and fraudsters in many cases, he also said.

TIB executive director mentioned political culture was responsible for the weakness of the banking sector, as associates of defaulters, beneficiaries and political influencers became institutionalized.

The collapse in the banking sector was unavoidable if all these menace were not effectively addressed, he warned.

TIB director (research and policy) Mohammad Rafiqul Hasan presented the research paper in the press conference. 

The BB has the power to reduce defaulted loans and bring good governance of banks but now the role of the regulatory body in controlling bad loans was questionable, Mohammad Rafiqul Hasan said in his research paper.

According to the research paper, the country’s banking sector defaulted loans was Tk22,481 crore in 2009, which soared to Tk1,16,288 crore at the end of September 2019. The defaulted loans increased by 417% during the last ten years, as per the report. 

However, total defaulted loans were Tk2,40,167 crore till June 2019, as per the International Monetary Fund (IMF). 

Why did BB turn into an ineffective institution on controlling defaulted loans?

TIB research paper said the appointment of governor, deputy governors and board members by the Ministry of Finance with political considerations was acting as a deterrent for the BB on its independent functioning.

The BB’s independence had been curtailed by restricting supervision on the state-owned banks, it mentioned.

The BB has no power to acquire and liquidate banks that have been violating rules and regulations and the independence of BB is being curtailed by changing the law in favor of businessmen under the influence of powerful quarters, according to the TIB report. 

The law established control of banking sector by  some families through changes to the Banking Companies Act 1991, as per the report. 

The report said bureaucracy dependent Bangladesh Bank board, appointment of governor by choice, political influence in banks supervision and pressure from influential groups were the reasons behind the weakness of the central bank.

Recommendations of the TIB on reducing defaulted loans and bringing good governance 

They are establishing a strong banking commission with stakeholders of this sector to reduce bad loans and reform the banking sector, amending the section 46 and 47 of the Banking Companies Act, 1991 to give full powers to Bangladesh Bank to control and supervise state-owned banks and having a written policy on recruitment and removal of Bangladesh Bank governor, deputy governor and board members. 

Besides, it recommended to replace private representatives with government officials at BB’s Board, abolish the provision of controlling banks by families, bar peoples involved in politics from becoming bank directors, keep provision against defaulted loans and to publish defaulters names  who repeatedly reschedule and restructure their loans.

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