Whenever a lender’s financial health deteriorates or any largescale irregularity is detected, the Bangladesh Bank dispatches an observer to be its eyes and ears on the ground.
The practice started in 1994, when it enlisted Oriental Bank as a problematic lender and appointed an observer to address the worsening corporate governance at the bank, which was later renamed as ICB Islamic Bank.
Today, 11 state-run and private banks including ICB Islamic Bank have central bank-appointed observers in them.
But their financial health remains worrisome owing to insurmountable loan irregularities and poor corporate governance. Some even took a turn for the worse after the observers came on board.
As of September last year, the default loans of the 11 problematic lenders together stood at Tk 55,537.5 crore, which was at 58.8 per cent of the banking sector’s default loans.
Of the 11 problematic banks, Sonali, Janata, Rupali, Agrani, Bangladesh Krishi, BASIC, ICB Islamic and Padma faced capital shortfall, as per the central bank data.
The central bank last year withdrew its observers from AB Bank and Bangladesh Commerce Bank as their financial health did not improve despite the BB’s surveillance through observers.
This raises the question: can the central bank-appointed observers stem the wave of irregularities?
“The observers are not playing their role actively,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
The problematic lenders’ financial health cannot improve as some observers are suborned by the banks.
The government and the BB should be strict in such cases, said Mansur, also a former economist of the International Monetary Fund.
The observers must be held accountable as they were sent there to safeguard the general public’s deposits.
“We heard that an observer recently resigned from a bank but why did he or she have to resign? That's a need to investigate,” said Mansur, also the chairman of Brac Bank.
Lila Rashid, the BB-appointed observer at state-run Agrani Bank, stepped down from the post on December 8 last year citing personal reasons.
However, a number of BB officials told Dhaka Tribune on condition of anonymity that Rashid, who was dispatched to the errant state-run lender just six months back, walked away over her differences with Agrani Chairman Zaid Bakht.
Earlier on August 18, a day after the state bank’s board meeting, Rashid wrote to the BB Governor Fazle Kabir complaining that she was not allowed to perform her duties at the session of the Agrani board of directors for Bakht.
“I was interrupted while speaking and felt a sense of hostility in the board meetings,” Rashid said in her written complaint.
AKM Fazlur Rahman, executive director of the BB, has been appointed the new observer of the bank, which was marked as problematic by the central bank in 2017.
“To be fair, the central bank-appointed observers cannot do anything as they do not have enough power,” said Salehuddin Ahmed, a former BB governor.
The accountability of the observers must be ensured to address the deteriorating corporate governance of lenders.
“Otherwise, it would not improve,” he added.
The observers are doing their jobs diligently but their views and opinions are often ignored by the bank board, said a central bank high official currently serving as an observer on condition of anonymity to speak candidly on the matter.
“It is difficult to identify the loan irregularities in some cases as banks often hide actual information,” he added.
