Six top officials of the state-owned Bangladesh Small Industries and Commerce Bank (BASIC) Limited have been suspended for alleged malpractices, the bank’s Deputy Managing Director Monaiem Khan being one of them. The decision was made recently by the board of directors of the state-owned bank, following prolonged communication with the central bank.
BASIC bank has been suffering from an acute shortage of capital because of its aggressive loaning policy and many other irregularities that often contravened to banking norms.
Despite a series of reports in the media, and suggestions from economists and bankers, the central bank, for reasons unknown, remained silent on the irregularities of BASIC bank.
An incumbent high-up and a former top ranking official of Bangladesh Bank recently had a long discussion with this scribe regarding the Hallmark scam of Sonali Bank, and the BASIC Bank irregularities. The former official was of the opinion that the central bank can now only control the private banks as the state-owned banks are directly taken care of by the ministry of finance. The incumbent official said the central bank lacks the autonomy to control activities such as the BASIC Bank irregularities.
But many bankers, including some former central bank officials, believe that the central bank has failed in controlling state-owned banks, including BASIC Bank, which in turn is hampering investment.
When the media, both print and electronic, were doing reports on the gross irregularities of BASIC Bank, no effort was seen on the part of the central bank to exercise the authority it has. In fact, Bangladesh Bank refrained from exercising its regulatory power fully as per the amended Banking Company Act, to contain irregularities. As the central bank remained silent, BASIC bank continued to flout rules even after the media ran several reports on its massive irregularities.
The banking sector, especially the state-owned banks, turned into a haven for wrongdoings because of dual control. The banking division in the ministry of finance and the Bangladesh Bank are playing the roles of guardians in the sector. The state-owned banks particularly are facing the dual guardianship where the ministry is certainly getting an edge over the central bank.
The central bank’s freedom from the finance ministry is needed at this time. The government comes with different agendas. These agendas may be good and sound, but the job of keeping the financial sector on track is the sole responsibility of the central bank. The central bank is the country’s monetary watchdog and its key policy issues keep the banks operating smoothly. While the central bank has control over private banks, the finance ministry’s interference with many banking matters, particularly those relating to the state-owned ones, is reportedly causing many unexpected complications. Recently, members of the International Monetary Fund (IMF) also talked about the complexities which have arisen out of dual supervision of the central bank and the banking division of state-owned banks.
Many financial sector specialists believe that, despite the presence of the banking division, the central bank itself can think of exerting its authority effectively. To perform its functions efficiently, the central bank requires bolstering manpower and enabling conditions that will facilitate it to select the right individuals for the right positions, from within and outside.
On the other hand, if the government wants genuine discipline in the banking sector, the first step will be dissolving the banking division from the Ministry of Finance, so that the state-owned commercial banks can be brought under the central bank’s direct supervision. The Hallmark scam and the BASIC Bank irregularities proved that there was weakness on the part of Bangladesh Bank to apply its strong supervisory powers and authority. Whatever autonomy it has, Bangladesh Bank needs to apply it to the fullest.
The central bank’s robust supervisory role can help avoid any loan scams (like Hallmark), improve the recovery of non-performing loans, and ensure proper use of bank credits. The banking sector has been demanding a separate pay scale for Bangladesh Bank and other state-owned financial institutions. The government can think of it to stop the exodus of efficient and skilled bankers to private banks, where payment is much higher under given market-driven circumstances.
However, many things depend on the psychology of the central bank people. It is up to them, how they would contribute in eliminating the weaknesses of state-owned banks. Bangladesh Bank has ample powers under the Bangladesh Bank Order, 1972, the Bank Companies Act, 1991, and the Financial Institutions Act, 1993. The central bank holds the authority of inspection and investigation of the banks. It can actively think of high-powered or special investigation committees to investigate serious fraud-forgery cases and irregularities in the banking sector.
It’s possible that these lapses require some amendments to the existing laws, but many things depend on the capacity of doing pragmatic analysis and taking actions by the central bank. The willpower of the Bangladesh Bank high-ups can ensure its own effectiveness. We all must understand that mismanagement in the banking sector hurts the economy.
