Tk92,261cr embezzled from banks in last 15 years: CPD

Between 2008-2023, Tk92,261, equivalent to 12% of the national budget of FY24, was embezzled in 24 major banking scams, the Centre for Policy Dialogue said at an event on Monday (12 August). 

 Between 2008 and 2023, Tk92,261 crore — equivalent to 12% of the national budget for FY24 — was embezzled in 24 major banking scams, according to the Centre for Policy Dialogue (CPD).

 In the capital on Monday, the economic think tank said that public trust in the banking sector has eroded due to ongoing sector deterioration and inadequate measures by the former government's policymakers.

 Fahmida Khatun, executive director of the CPD, presented the keynote paper, titled "Bringing Discipline in the Banking Sector: What Should be Done Immediately", outlining a series of recommendations for the banking sector.

She addressed the issue of governance in the banking sector through four key areas: institutional, regulatory, legal, and data & information governance.

Fahmida Khatun said the lack of governance on the institutional side includes political appointments of bank directors, loans sanctioned for political reasons, rescheduling of loans despite poor repayment records, and writing off loans to reduce tax burdens.

About regulatory governance, she said many banks have been licensed so far to create a group of beneficiaries and vested interests. A few are controlling the banking sector and the central bank. In many cases, they are also making policies, she said.

Amendments to the Banking Company Act to favour vested interests, delays in the judicial process and a long backlog of cases, and lenient legal stance against willful defaulters are the legal issues considering governance, Fahmida said.

She noted several issues related to data and information governance: lack of transparency in how data is used in decision-making, as well as the prevalence of false information, forged documents, and fake companies used to obtain loans.

Addressing the media after the presentation, Fahmida Khatun highlighted the need for a clear delineation of responsibilities between the central bank and the Anti-Corruption Commission (ACC). She pointed out that the central bank often defers to the ACC on financial scams, resulting in unclear accountability.

Good governance should be ensured so that there is no instability in the banking sector if the government changes, she added. 

CPD Distinguished Fellow Prof Mustafizur Rahman demanded the release of a white paper on corruption in the financial sector.       

CPD recommendations

The CPD recommended that commercial banks be strengthened, the independence of the Bangladesh Bank be upheld, a conducive legal and judicial environment be created and integrity and availability of timely data be ensured.

Creditworthiness has been judged mainly by political worthiness, without routine assessment of the potential risks associated with the borrower. 

Loans should be sanctioned on the basis of the central bank's "Guidelines on Internal Credit Risk Rating System for Banks". 

The single-borrower exposure limit for commercial banks should be strictly enforced.

The CPD recommended that repeated rescheduling and write-offs of NPLs be stopped permanently. 

The CPD also said several banks of the third and fourth generations were "clinically dead," recommending that such banks be allowed to close down. 

In the case of merging weak banks with stronger ones, it should proceed only after proper auditing of weak banks to determine their real balance sheets. 

On the issue of embezzlement, the CPD recommends that all individuals involved in fraudulent activities be investigated and brought to justice.

The Bangladesh Bank does not make independent decisions on its operations and monetary policy formulation and implementation. 

The autonomy of the central bank should be upheld in line with the Bangladesh Bank Amendment Bill 2003. 

In 2013, the government approved licences for nine new private commercial banks to politically powerful owners, including a former mayor. No more licences for new banks should be given on political grounds without pragmatic assessment, the CPD recommends.

The independent think tank also said a single corporation had gained control of over seven private commercial banks and this should not be allowed.

The Bangladesh Financial Intelligence Unit should be strengthened to prevent illicit financial outflows and stop previously laundered money from entering the country to destabilise the new interim government or create anarchy.

The CPD said the number of judges dealing with the Financial Loan Court Act 2003 and Bankruptcy Act 1997 should be increased to ensure speedy disposal of loan default cases and to reduce the backlog.

The CPD recommends that bank accounts of wilful defaulters and their immediate family members should be immediately frozen. Their own and their immediate family members' assets should be liquidated, and their businesses should be nationalised temporarily. 

Information on wilful defaulters should be shared with Visa, Mastercard, American Express, and the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network so that their transactions in other countries are blocked by these companies. 

The list of wilful defaulters should be disclosed publicly so that they may be put on media trial.