Not fixing old mistakes to derail roadmap on fixing banks’ health: Prof Wahiduddin 

The new roadmap of the central bank announced to streamline the struggling banking sector will not pay off if the mistakes committed while executing the previous plans are not rectified, says Prof Wahiduddin Mahmud. 

"It is crucial to note that a similar roadmap existed earlier. Simply formulation of a new plan without knowing the reasons for the deviation from the previous ones may not yield any significant results," the eminent economist said while unwrapping the 5th edition of "Banking Almanac" in the capital on Saturday. 

On 4 February, the Bangladesh Bank unveiled a new roadmap to curtail spiraling defaulted loans to a reasonable level apart from reinstating good governance in the banking sector. 

The roadmap, aligned with International Monetary Fund suggestions as part of its $4.7 billion loan to Bangladesh, lays out 17 action plans, including slashing NPLs, curbing anonymous loans and fraudulent activities, developing mechanisms for appointing competent directors and merging weaker banks.  

Once it is implemented, overall defaulted loans are expected to be cut to less than 8% of all outstanding loans by June 2026. The state banks' defaulted loans will be less than 10% percent and that of private banks under 5%. 

"The banking sector acts as the heart of the economy. But unrest prevails there. Past mistakes must be analysed in order to resolve financial problems," Wahiduddin Mahmud said. 

In the past, the government had also tried to replace simple policies with stringent ones, but they were relaxed later, the seasoned economist alleged. "The question is why it was done."

"The government definitely wants to restore order in the financial sector. But discipline is harmed when some individuals are exempted. Regulatory agencies lose the moral strength to enforce rules," he noted. 

He thinks sensitive areas like banking should be kept free of unethical benefits as well as political influence in the interest of maintaining good health for the entire financial sector. 

According to him, it is important to know the history of the banking regulations that have gone through many amendments. Sponsor directors are very powerful. Knowing their borrowing limit and the number and the tenure of directors from a family is also very crucial. 

"Without knowing these issues in detail, it will be a tough job to obtain loan information regarding directors," Prof Wahiduddin stated. 

Emphasising the need for statistics to be credible and for a disclosure of financial transactions, he said the Banking Almanac lacks information about written-off loans although it provides data on defaulted loans. 

However, he thinks it will be helpful for the depositors in deciding where to park their money as the almanac reveals banks' loans and deposits data.   

There is a plan to merge weak banks with the strong ones, but private banks will not take responsibility for weak banks, the economist said, adding that it will only be possible if liability is imposed on state-owned lenders. 

He went on to say, "A few scandal-hit large banks have not seen a decline in deposits since depositors are not informed of the scams," supporting the merger of the weak banks that are not able to collect deposits. 

Speaking at the event, Salehuddin Ahmed, former governor of the central bank, alleged that the loan write-off time has been curtailed from three years to two years only to make the balance sheet look healthy. He said the move will remove Tk43,000 crore NPLs from the balance sheet. 

He said, "Allowing new banks was a political decision. The IMF and the World Bank are also no exception. It is okay if the new banks do creative work or go closer to people. However, there is no need for a bank which only has a branch in Dhaka."

He also questioned the credibility of data published by different state agencies, saying that the central bank export data do not match with those of the Export Promotion Bureau. He also referred to the mismatch between the information provided by the government and that by the IMF about forex reserves. 

Mohammad Nurul Amani, former chairman of the Association of Bankers Bangladesh (ABB), among others, attended the event. The Banking Almanac's Project Director Abder Rahman presented the highlights of the publication.