Bangladesh Bank being reduced to a toothless tiger

Abul Mohsen

A BIBM (Bangladesh Institute of Bank Management) survey formally released last month has categorically stated that political power is being used in running the country’s banking business and as a result the Bangladesh Bank, the country’s central bank, has failed to take independent decisions.

In fact, the BIBM survey has succinctly pointed out that such government actions have prevented the country’s central bank from taking required punitive measures against large scale banking scams.

The survey in a detail analysis suggested that in a few cases, the central bank could not immediately take punitive measures for the sake of national interest because of the misuse of political powers by interested quarters with close links to the ruling party stalwarts.

The BIBM survey, which has since been widely discussed in the banking circles, was formally presented at a workshop last month by BIBM Director Prof Md. Mohiuddin Siddique.

Bangladesh Bank Deputy Governor Abu Hena Md. Razee Hassan, who attended the function as the chief guest said: “A strong internal control system is a must for a sustainable banking business.”  He, however, pointed out that the Bangladesh Bank is improving its monitoring system to rein in banking sector.

Sense of responsibility   

In an oblique reference to the central bank’s sense of responsibilities, the report without mincing any word observed: “There was a common perception that the Bangladesh Bank  fails to respond to large scale scams due its lack of farsightedness.” But at the same time it forthrightly observed: “It cannot be denied that the Bangladesh Bank is not independent to take decisions at all times.”      

The survey also said that the Bangladesh Bank who had been consulted during the survey also “felt that political power should not be misused for operating banking business”

The BIBM report also discussed that most bank-owners have failed to realize that banking is a “specialized industry” and any misdeed “will affect them and the economy as a whole.”

“Unlike any other industries”, the survey pointed out, “failure of a bank is a contagious one and may lead to the crisis in the entire banking industry. …The government should not allow any misconduct from anyone for the sake of its own image. The Bangladesh Bank will have to take harsh actions against parties involving with irregularities,” the survey recommended.

It is, therefore, easy to understand, the survey pointed out, that in a bank-based economy like Bangladesh, any large scale shock in the financial sector hits the real sector hard and inflicts huge burden on the society. So, should the regulators detect any major event of fraudulent practice or financial crime at an early stage, impose severe punishment on the persons responsible.

The study revealed: Banks generally set their profit target without any underlying objective and quantitative analysis. So the attention of the management remains disproportionally focused on achieving the quantitative target rather than ensuring quality of operations and adherence to sound banking practice. As a result, asset quality of the bank deteriorates, causing non-performing loans crop up.