• Thursday, Jan 23, 2020
  • Last Update : 02:14 pm

Massive reforms to fix ailing banking sector launched

  • Published at 12:34 am March 4th, 2019
Banking
Photo: BIGSTOCK

The committees have been tasked with making specific recommendations to reduce default loans

Bangladesh Bank has formed several committees, including a high profile one led by its one deputy governor, in a bid to reform the country's ailing banking sector. 

The committees have been tasked with making specific recommendations to reduce default loans and take actions against willful defaulters, said a senior central bank official.

Furthermore, the committees will also recommend to amend the Bank Companies Act, Artha Rin Adalat (Money Loan Court), Financial Institutions Act, and other bankruptcy-related legislations. 

A policy for compulsory merger of weaker banks and financial institutions will also be drafted by a committee. 

Special inspections will also be conducted at the head offices of three banks—Janata Bank, AB Bank, and Al-Arafah Islami Bank, the official added. 

Additionally, a committee comprising representatives from central bank and other commercial banks will evaluate changes to the definition of default loans, evaluate the borrowing by bank directors, and evaluate the role of the board of directors in disbursing and supervising loans. 

While he was the chairman of Agrani Bank, Research Director of Bangladesh Institute of Development Studies (BIDS) Zaid Bakht said the new government would be successful in addressing problems crippling the banking sector.

Stressing on establishing a separate bench in the High Court, he said: “A separate Bench in the High Court for dealing with cases concerning default loans is of paramount importance to reduce NPLs [non-performing loans].

"The initiative of the government to implement its pledges concerning the banking sector and involving the central bank in this regard is a good move,” he added.

High profile committee for reducing default loans

The high profile committee comprising 10 members—including senior officials of the Bangladesh Bank and the Finance Ministry—is being led by central bank Deputy Governor Ahmed Jamal. 

Bangladesh Bank Executive Directors Md Shah Alam and Abu Farah Md Naser, two representatives of the Financial Institutions Division of the Ministry of Finance, Banking Regulation and Policy Department (BRPD) General Manager AKM Amjad Hussain, Financial Institutions and Markets Department General Manager Md Shahidul Islam, BRPD Joint Director Rashida Khanam, and Rizia Farhana Khan are also on the committee. 

BRPD Deputy General Manager Shahriar Siddiqui has been selected as the member secretary of the committee.

The committee will evaluate and review all bankruptcy related laws to reduce the high amount of non-performing loans (NPLs) in the country. 

Committee for finalizing merger policy

Another committee, led by Financial Stability Department General Manager Md Kabir Ahmed, will draft the merger policy for weak banks and financial institutions. 

Officials of BRPD, Financial Institutions and Markets Department, and Off-site Supervision Division have also been included in the committee. 

The committee will submit their report to the Banking Regulation and Policy Department, which will then take necessary steps based on the report findings.

Committee for changing defaulting policy

The central bank has formed another committee with five members led by BRPD General Manager AKM Amjad Hussain. 

The committee will recommend changes to the current definition of default loans. 

Committee for evaluating actual situation of loans 

Led by Financial Integrity Department General Manager Md Shafiqul Islam, the committee will assess the actual situation of the loans distributed by banks and financial institutions. 

The committee also includes concerned officials from the Bank Inspection Division of Bangladesh Bank.

Committee for investigating three banks

The central bank plans to conduct a special investigation on the top 60 borrowers of the three banks—Janata Bank, AB Bank, and Al-Arafah Islami Bank. 

An inquiry committee has already been formed, led by a Bangladesh Bank general manager. 

Additionally, three special committees have been formed to conduct special inspections in all three of the banks, and instructed to submit their reports within 10 working days. 

For Janata Bank, a four-member committee has been formed to find the defaulters who are the mainly responsible for increasing the bank's default loans.

Bangladesh Bank Inspection Department Deputy Inspector General Asim Kumar Chowdhury is leading the committee constituting Deputy General Manager (DGM) Abdul Latif, Joint Director Imrul Haider Chowdhury, and Deputy Director SAM Matiul Haque. 

A three-member committee led by DGM AKM Golam Mahmud has been formed to find the defaulters of AB Bank. Other members include Joint Director Kazi Arifur Rahman and Deputy Director Madhav Kumar Saha.

Al-Arafah Islami Bank will be inspected by a three-member committee led by DGM Rukunuzzaman. Deputy Directors Mosharraf Hossain and Nasir Mohammad Abdullah are also members of the committee. 

Upon identifying each bank's top five lenders; top five bank loan renewals; top five interest waivers; and top five loan defaulters, the inquiry committees will make specific recommendations to reduce default loans and take action against willful defaulters. 

Speaking to the Dhaka Tribune, Bangladesh Bank Executive Director and Spokesperson Serajul Islam said these issues are now in the "initial stage", and that the committees will start working within a few days. 

Calls for reform

In the beginning of this year, the government asked Bangladesh Bank to undertake banking sector reforms as a part of the ruling Awami League's 13-point election manifesto pledges. 

Prior to elections in December 30, 2018, Awami League had pledged to undertake an effective and sustainable strategy to lower NPLs and implement the Bankruptcy Act. 

According to the manifesto, the central bank would keep interest rates under control without hampering the market system, by adopting specific strategies and taking initiatives to inspect the expertise and skill of banks in approving and disbursing loans.

The manifesto pledged to make the ongoing supervision and regulation of commercial banks and financial institutions more effective and powerful, effectively addressing banking fraud—including loan defaulters.

At the end of December 2018, total NPLs in banking sector stood at Tk93,911.40 crore, or 10.30% of the total disbursed loans.