Unlocking transparency: Why Bangladesh Bank must share lending data with researchers
From political interference to unchecked loans, Bangladesh's financial system faces repeated crises. But empowering researchers with anonymised lending data might hold the solution
In recent years, Bangladesh's financial sector has faced unprecedented turmoil due to a series of high-profile lending scandals. These incidents have laid bare glaring deficiencies in transparency, accountability, and regulatory oversight.
From the BASIC Bank fraud and Hallmark Group embezzlement to the controversial practices of S Alam Group and Beximco Group, each scandal has exposed a troubling pattern of unchecked credit disbursement, political interference, and regulatory blind spots.
Collectively, these events have not only resulted in massive financial losses but also profoundly eroded public trust in the banking system, leaving the sector at a crossroads.
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A troubled history of financial mismanagement
Bangladesh's financial scandals form a cautionary tale of systemic vulnerabilities. The BASIC Bank scandal (2010–2014) remains a stark example of fraudulent practices, with over Tk4,500 crore ($530 million) siphoned off through improperly approved loans. Investigations revealed collusion at multiple levels, including bank leadership, board members, and borrowers. This led to the bank's non-performing loan (NPL) ratio surging to an alarming 68%, undermining its stability.
Similarly, the Hallmark Group scandal (2012) saw Tk3,547 crore ($415 million) funneled out of Sonali Bank using fake documentation and fictitious projects. The scale of the fraud underscored significant gaps in oversight and the ease with which corruption can infiltrate even state-owned financial institutions.
The 2018 collapse of Farmers Bank added another chapter to this narrative of failure. Despite being newly established, the bank approved Tk3,500 crore in poorly documented loans within just five years, pushing it to insolvency. Government intervention through a Tk715 crore bailout and a subsequent rebranding as Padma Bank did little to address the underlying issues, with 62% of its loans still classified as defaults.
More recently, the S Alam Group scandal (2023) revealed fraudulent loans worth Tk95,000 crore ($8.6 billion) obtained from six banks. Allegations included the use of forged documents, illegal offshore fund transfers amounting to Tk11,000 crore, and VAT evasion of Tk7,000 crore. This case stands as one of the largest financial frauds in the country's history.
Adding to this troubling pattern is the role of conglomerates like Beximco Group, led by Salman F Rahman. The group allegedly defaulted on Tk36,865 crore ($3.4 billion) in loans and faced accusations of laundering Tk33,470 crore abroad. Political connections have often stalled accountability in such cases, perpetuating a cycle of impunity.
Finally, the Janata Bank and Crescent Group scandal (2019) exemplifies how entrenched corruption destabilizes financial institutions. In this case, Tk3,000 crore ($108 million) was embezzled through falsified export documents, leading to Janata Bank's NPL ratio spiking to 44%.
Common threads of crisis
These scandals share a common thread: political interference in lending, insufficient oversight, and a lack of accountability. The consequences are far-reaching. Financial institutions, especially state-owned ones, are burdened with bad loans, eroding their capacity to support economic growth. Taxpayers are repeatedly left to shoulder the financial burden of bailouts. Most critically, public trust in the banking system continues to wane, as every new scandal deepens skepticism.
A preventable crisis: The case for lending data transparency
At the heart of these recurring failures lies a critical gap: restricted access to lending data. While Bangladesh Bank, the central regulatory authority, holds comprehensive datasets on loans, defaults, and credit patterns, this information remains largely inaccessible to independent researchers and analysts.
The lack of transparency prevents the early detection of irregularities and impedes evidence-based policymaking. Securely and responsibly opening this data could be the key to averting future crises and fostering a resilient economy.
Early warning systems for anomalies
Access to granular lending data could enable researchers to detect irregularities early. For instance, patterns of unusually large loan disbursements to newly established entities, as seen in the BASIC Bank scandal, could have been flagged. Repeated rescheduling of loans for the same borrowers might have exposed attempts to artificially mask NPLs. Instances of "evergreening" loans—where borrowers receive new loans to repay existing ones—could also be identified, preventing financial fraud from escalating.
Identifying systemic risks
Transparent lending data would allow analysts to spot over-concentration of loans in specific sectors, such as real estate or textiles, which could pose significant risks during downturns. Additionally, data analysis could reveal cases where a single corporate entity disproportionately dominated a bank's lending portfolio, compromising financial stability. In the Farmers Bank crisis, such analysis could have revealed unsustainable loan growth and liquidity risks, enabling preventive action.
Promoting accountability
By benchmarking lending practices across banks, researchers could uncover systemic weaknesses and anomalies. Cross-institutional comparisons might have revealed inconsistencies in loan approval processes, as seen in the Hallmark Group scandal.
Transparent lending data would also enable independent audits, strengthening enforcement of accountability measures. This, in turn, would rebuild public trust in financial institutions.
Addressing regional disparities and inequities
Lending data could shine a light on geographical disparities in credit allocation, revealing whether rural or underdeveloped areas are systematically neglected. Insights into whether loans meant for small and medium enterprises (SMEs) or marginalized groups are reaching their intended recipients would enable targeted policy interventions.
Pre-empting financial misconduct
Irregular offshore fund transfers, as seen in the S. Alam Group case, could have been detected earlier by cross-referencing lending data with transaction records. Lending data analysis might also have uncovered complex loan structures designed to obscure fraudulent practices.
Lessons from global practices
Many countries have successfully implemented systems that balance transparency with privacy. Central banks like the Federal Reserve (U.S.), the European Central Bank (ECB), and the Reserve Bank of India (RBI) provide anonymised lending datasets to accredited researchers under strict usage agreements.
These systems allow for meaningful analysis while safeguarding sensitive borrower information. Bangladesh could adopt similar measures, ensuring that transparency fosters accountability without compromising privacy.
The balance of privacy and transparency
Modern anonymisation techniques and encryption protocols make it possible to protect borrower identities while enabling analysis. By following global best practices, Bangladesh Bank can create a structured framework for data sharing, granting access to approved researchers under stringent conditions.
A roadmap for reform
To address its financial vulnerabilities, Bangladesh must take a phased approach to data transparency:
- Phase 1: Aggregated Data Sharing
- Begin by sharing anonymised datasets with accredited institutions, ensuring borrower confidentiality while enabling macro-level analysis.
- Phase 2: Clear protocols and guidelines
- Establish robust access mechanisms, eligibility criteria, and usage agreements to prevent misuse of sensitive information.
- Phase 3: Collaborative research
- Partner with academic and research institutions to generate actionable insights that strengthen financial governance.
- Phase 4: Policy integration
Use research findings to refine credit policies, improve risk assessment models, and enhance regulatory frameworks.
A call for change
Bangladesh cannot afford to ignore the lessons of its past financial scandals. Transparency is not a luxury; it is a necessity for sustainable economic growth. Unlocking the power of lending data represents a commitment to accountability and governance. It is a step towards restoring public confidence and ensuring that history does not repeat itself.
The time for action is now. Lending data is more than numbers—it is the blueprint for a robust and transparent financial ecosystem. By embracing transparency, Bangladesh can pave the way for a future where public trust is not just restored but strengthened.
The author is a Sessional Lecturer at University of Sydney, Discipline of Finance
