Reforms in banking must to sustain financial sector

In 2012, the International Monetary Fund (IMF) recommended reforms in the banking sector including reducing default loans and strengthening the supervision of the Bangladesh Bank. But the government and the Bangladesh Bank did not implement them, showing various excuses. The situation in this sector has become much worse now. This time, the conditions of the IMF must be fulfilled to sustain the financial sector.

If we look at the history of the banking sector, we will see that the condition of the banking sector was quite good in the 1990s. In 1999, two committees were formed for the development of this sector. But their recommendations were not implemented showing a lack of manpower and technological shortfalls. These excuses are always used. But these two problems cannot last for such a long time.

The private banking sector is controlled by businessmen and bankers. The Bangladesh Bank cannot take proper decisions due to the pressure of the Association of Bankers, Bangladesh (ABB), the platform of the managing directors of private banks, and different chambers of businessmen.

On the other hand, the government controls the government banks. These banks do not follow the directives of the Bangladesh Bank properly. In this respect, the central bank does not have much to do. As a result, the situation in the banking sector is getting worse day by day.

No effective measures have been taken to control defaulted loans. No businessmen have been declared as defaulters even if they did not pay a single instalment in the two years during the Covid-19 pandemic. Far from being punished, the defaulters have been given more benefits in various ways. That is why defaulters are encouraged.

Besides, the bank officials are not being punished even if they commit any irregularities and corruption. That is why the banking sector has become more vulnerable. The government has committed to the IMF to remove this vulnerability. In 2012, the condition of banks was better than this. That is why the then finance minister talked about building a well-regulated banking sector.

Whether the IMF says it or not, it is necessary to build a sustainable banking system for the sake of the country's economy. Bangladeshi experts have always been saying this. But the government or the Bangladesh Bank are not doing that.

However, I do not think that we need to follow every suggestion of the IMF. It has asked to reduce interest rates on savings certificates, which is not logical. Fixed-income people generally invest in savings certificates. Instead of reducing interest rates here, the government should focus on increasing internal resources and ensuring good governance.

Salehuddin Ahmed, former governor of the Bangladesh Bank, shared his take on the IMF reform conditions as he spoke with TBS Special Correspondent Abul Kashem