Removal of Treasury chiefs: Panic or justified?

Bangladesh Bank has recently directed six private banks' authorities to transfer their treasury heads to human resource departments for making excessive profits in treasury operations, and destabilising the foreign exchange market in the process. Is this directive justified? Did these officials act of their own accord? Economists weigh in

'These officials do not make decisions on their own'

Dr Salahuddin Ahmed. Illustration: TBS

Salehuddin Ahmed, Former Governor of the Bangladesh Bank

Bangladesh bank regularly takes steps regarding different dealings in the banking sector. Foreign exchange market is volatile and sensitive at this moment, so the directive is not quite abnormal. I think the bankers will be more careful about these dealings after this action.

However, though the directive has been handed out, the respective officials' explanations can be sought. They can't be punished before that.

Also, these officials cannot be held responsible alone. They do not make the decisions on their own. The high-ups - management authority and directors of the banks - especially bank MDs closely monitor divisions like the treasury.

Not only foreign exchange, the high-ups also manage other funds. Therefore, BB can also seek explanations from the particular banks, instead of just treasury officials - whether they knew about the dealings, what directives they gave at that time, etc. If done, other banks will be cautious too. In the past, bank MDs were removed on fund management issues and forex dealings.

Passing the blame only onto the officers would demoralise them; because they carry out orders from their bosses.

However, BB should be constantly monitoring these. They have suddenly found only a few banks committing some irregularities this time, but maybe others are doing it too. Without strengthening their monitoring, BB will not be able to stop those.

Secondly, there is a huge gap between the buying and sale rate of dollars. BB should do something about it. Banks will buy dollars for Tk94, but will sell at Tk 114-115, this should not be allowed to continue. Had they bought it at Tk112, then selling at this rate would have been justified. 

Also, that the money exchanges are buying dollars from outside at an exorbitant rate should be looked into: where they are buying from, what they are paying with. Because buying dollars at a high rate sends out wrong signals about the market.

During my tenure, the margin between buying and selling price was not more than Tk1-Tk1.5. The margin, while it should not be fixed, must be kept reasonable. The cost involved is not so high that banks would sell at so high a price. BB can instruct the banks to keep the margin within limits.

'Due process was not followed and the accused did not get opportunity to defend themselves'

Dr Ahsan H Mansur : TBS Illustration

Ahsan H Mansur, Executive Director, Policy Research Institute of Bangladesh

If the private banks or more specifically, the treasury chiefs in question, did something that violated the established regulations regarding dollar trade, Bangladesh Bank has every right to take necessary actions. But in this case, Bangladesh bank did not mention any specific laws or regulations that were violated. They just issued an order without providing sufficient justification. 

It seems as though Bangladesh Bank was caught off-guard by the dollar crisis and the pressure on foreign reserves. In their panic, they had to show that they were doing something, so they ordered the removal of the treasury chiefs. Unfortunately, no due process was followed in issuing these orders and the accused individuals did not get the opportunity to defend themselves. 

We need to understand that the primary responsibility of Treasury departments in private banks is to complete these foreign currency transactions and make profits. And obviously, they get certain commissions for these transactions. In doing so, they have to adhere to certain rules and regulations established by the central bank. The sudden order to remove the treasury chiefs from the six banks may create panic in their treasury departments. Out of fear, employees in these departments may refrain from or become reluctant to partake in their usual duties, which can adversely affect the banking sector.

Furthermore, the treasury chiefs in question were experienced and highly skilled professionals. They have years of experience working at large local and international organisations like Brac Bank and Standard Chartered and have managed their treasury departments for a long time. As a result, the services they provide are often not replaceable and abruptly removing them might leave a gap that cannot be readily filled. So, we need to be careful before taking any drastic measures.