There have been long-standing allegations about irregularities in the banking sector of Bangladesh. Extensively rising figures of defaulted loans, lack of accountability and inadequacy of good governance are frequently glaring up in this sector involving both state-run and private banks. The sums of defaulted loans in the country are continuously mounting. Since no remarkable actions are being taken against loan defaulters, financial disorder is rising by leaps and bounds. Analysis about the country's banking activities shows a very disappointing situation with references to the point that the banking sector of Bangladesh has been clutched by a few influential groups who have been misusing their power and thus banking rackets are happening without interventions from the regulatory bodies as a result of which Bangladesh's economic progress is likely to face tremendous obstructions.
Banking laws and regulations of our country are not being applied properly which is one of the blazing reasons behind the alarming escalation of defaulted loans. Nepotism, undue political influence and lack of actions by the government against financial culprits are responsible too. Good governance is intensely missing among the boards of directors, managements and officials of different banks. Higher officials of banks should carry out their duties transparently so that the practice of transparency and integrity can be constituted among all employees of banks.
There is an allegation that people holding higher posts in banks take undue privileges from banking administration for themselves and for their close quarters. There is serious lack of monitoring and surveillance by the central bank over the activities of all these banks. For this reason corruption, mismanagement and lack of accountability have been burgeoning throughout the banking sector day by day.
It has been observed for a long time that the commercial banks of the country do not show much eagerness about small and medium entrepreneurs and depositors. On the other hand, people who take huge amounts of loans from banks are highly influential and they in most cases do not repay the money they borrow from banks. Defaulted loans are in many cases being rescheduled but still there is no remarkable progress.
For some reasons Bangladesh Bank is not being able to take firm initiatives against loan defaulters. While I was Bangladesh Bank's governor, orders were issued to the commercial banks to follow banking laws strictly. Several banks were punished at that time on charges of violating banking regulations. Some managing directors were removed and fined for not complying with the orders from the central bank. Moreover, I had strongly instructed all banks to establish good governance in banking functionalities.
Clients who virtuously follow banking regulations by paying back borrowed money in due course do not receive any special privilege from commercial banks. This is a big anomaly in the banking sector in my view. In case such clients face any problem with the repayment of loans they should be accorded some flexibility if their past banking records are good enough. It is surprising that people who abide by banking laws and run their business following all principles and norms do not receive any financial motivation from the concerned authorities. All banks should look into this point. Bangladesh Bank can issue special directives on this issue to facilitate business endeavors by law-abiding citizens of the country. Entrepreneurs who obey banking rules should be encouraged by all banks and they should be inspired to expand their business with monetary cooperation from commercial banks.
While I was Bangladesh Bank's governor, some industries were about to shut down for various reasons. The directors of most of these industries lived overseas which is why they were not being able to run their industries properly. Some steps were taken at that time to save these industries. Bangladesh Bank along with the commercial banks assisted those industries and most of those industries survived later on. In my view Bangladesh Bank should come up to aid genuine entrepreneurs who have real problems with their business. Bangladesh Bank should all the time work for innovative measures to cooperate with the business enterprises of the country which are being run in a fair way by their owners without infringement of banking rules.
To boost investments, all banks should provide loans to small and medium enterprises on easier terms and conditions considering their capability and prospects. It should be noted that small and medium enterprises play significant roles for the country's economic advancement. It is convenient to pay bank loans to entrepreneurs if their business records are all right and if their business have good potentialities. In such cases experience, social status, business background of the loan applicants need to be assessed very carefully.
Security deposits can be taken from loan-seekers, but that is not everything because if an entrepreneur is not honest, then security deposit cannot give any assurance about loan recovery from him. Loan approval and disbursement to capable and potential entrepreneurs should be done within a short time so that the entrepreneurs can congenially utilize the loans. If loans are not paid to the right entrepreneurs quickly it may cause trouble to their business efforts. On the other hand, bank officials should be very cautious with the assessment of loan applicants' assets so that over-evaluation and under-evaluation do not happen.
The central bank should be empowered to deal with all issues arising from the country's banking sector. I think finance ministry should not have divisions for banks and financial organizations.
Bangladesh government has meanwhile announced that 7.4% GDP growth would be obtained during this fiscal year. However, analyzing the associated indicators it can be predicted that acquiring 7.4% GDP growth would be really difficult this time. Growth in the agricultural sector has slowed down. There is not much optimism about the production sector either. Remittances by Bangladeshi people from overseas have gone down drastically. At the same time expenses incurred by imported goods have increased but earnings through exports have declined. I told earlier that GDP growth may reach hardly 7% this fiscal year. To be more precise, it may be something around 6.8% to 7%. I cannot prognosticate any higher percentage for this fiscal year as far as GDP growth is concerned.
Dr. Salehuddin Ahmed is a prominent economist and former Governor, Bangladesh Bank.