Good governance for banking

Dhaka,  Wed,  07 December 2016
Published : 24 Nov 2016, 20:54:01

Good governance for banking

THE BANGLADESH Bank, the regulatory authority for banks, has cautioned nine 4th generation banks recently against 'aggressive banking' and huge trail of classified loans. The nine banks' classified loans have soared to unexpected levels within a short span of time. According to the data provided by the Bangladesh Bank, classified loans of nine new banks increased by 43 per cent from Tk1.69 billion to Tk 5.61 billion.

Under the circumstances, the BB directed the banks to recover the classified loans within the shortest possible time. The central bank has also instructed all nine banks to appoint independent directors in the bank under the provision of banking companies' act. The regulatory authority cautioned the MDs of the banks to act within their powers and prerogatives to ensure good governance. It also directed all the nine banks to refrain from unhealthy competition among them.

It was a praiseworthy move by the Bangladesh Bank. However, only verbal caution is not enough. It must set a time frame and strictly monitor recovery of classified loans and take punitive action if the loans are not recovered within the stipulated time.

But the Bangladesh Bank cannot evade its responsibility. One can genuinely ask the central bank as to why these banks were allowed such a long time and the unrecoverable loans rose to uncomfortable heights and that too within a very short time. It had the records of the nine banks and their performance.  It could have warned them long before. Beside urban and rural 1:1 branch expansion, targeted agricultural loans and CSR activities have made it difficult for the new banks to comply with the laid down regulations. Instead of imposing conditions at the beginning, the BB could relax those conditions for at least five years for new banks.

The Bangladesh Bank is now more powerful than before and it must take stringent action if banks indulge in unethical practice and breach existing rules and regulations to ensure good governance in the banking sector. Otherwise,  the banking sector will be volatile which will unleash negative impact on the economy.

Emran

A banker
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