A task force on economic reforms in a report has suggested strengthening loan approval processes, depoliticising bank boards, upholding the Bangladesh Bank鈥檚 independence and introducing legal reforms for addressing deep-rooted governance issues, enhancing transparency and ensuring financial stability in the banking sector.
The report, titled 鈥楾ask force report on re-strategising the economy and mobilising resources for equitable and sustainable development鈥� was presented by planning adviser Wahiduddin Mahmud to chief adviser Muhammad Yunus on January 30.
It has emphasised the need for a robust governance framework that includes competent management, accountable board members, transparent internal control systems, effective audit mechanisms and sound risk-management practices.
The sector must also adopt modern technological solutions to stay competitive and secure.
A key recommendation is to strengthen the loan sanctioning process by adhering to Bangladesh Bank鈥檚 guidelines.
Large loans should require approval from both bank鈥檚 senior management and the central bank, while the single borrower exposure limit must be strictly enforced.
The report calls for halting the practice of repeatedly rescheduling and writing off non-performing loans, with penalties for commercial banks that fail to comply with regulations.
In addition, troubled banks should be monitored by appointed administrators, and ineffective management or boards should be replaced. The politicisation of bank boards must be eliminated, with board tenures limited to six consecutive years, ensuring that only qualified individuals are appointed.
Medium-term recommendations focus on strengthening internal controls and compliance, revitalising internal audit systems, and closing down banks which are on the brink of collapse.
Long-term solutions call for modernising banking systems and improving integration with digital platforms.
Furthermore, board members of weak banks should be prohibited from joining the boards of stronger banks after mergers, and IT infrastructure should be enhanced to improve security and interoperability.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, said that wilful defaulters must be brought to book.
Such actions, he argued, would serve as a deterrent, discouraging others from defaulting intentionally in future.
He also said that good governance and transparency must be established within the central bank as well as all the other commercial banks.
Every banker should have accountability, which would restore the people鈥檚 confidence in the country鈥檚 banking system, he said.
The task force report also stresses the importance of upholding the independence of the Bangladesh Bank.
It recommends stopping the use of public funds for recapitalising poorly governed commercial banks and halting the issuance of new bank licences unless a thorough and pragmatic evaluation is conducted.
Additionally, no individual or group should be allowed to control multiple banks. To combat money laundering, the Bangladesh Financial Intelligence Unit should be strengthened with a new, capable team.
In terms of legal reforms, the report advocates for establishing specialised courts and tribunals to expedite the resolution of complex cases.
The bankruptcy act should be amended to include provisions for corporate and cross-border bankruptcy.
Policies should also be introduced to freeze the accounts of wilful defaulters, liquidate their assets and enforce harsher penalties for disobedience of court orders.
Legal loopholes that allow defaulters to prolong proceedings must be addressed.
For long-term sustainability, the report calls for improvements in the availability and integrity of data. Banks must make timely disclosures regarding their compliance with international standards like BASEL III, and comprehensive risk management systems must be implemented across the sector. Consumer data must be protected with strong regulations to secure customers鈥� financial information.
The banking crisis, long concealed under regulatory opacity and political influence, came into sharper focus after the mass protests of July 2024, it observed.
Bangladesh Bank data showed that the amount of non-performing loans shot up by more than Tk聽1 lakh crore to Tk聽2,84,977 crore in September 2024 from Tk聽1,82,295 crore at the end of March.
About 17 per cent of total bank loans amounting to Tk聽16.82 lakh crore was classified as non-performing, the highest ratio in South Asia.
Two business groups, S Alam Group and Beximco Group, had exploited the banking sector, withdrawing loans worth Tk 2.25 lakh crore and Tk 50,000 crore respectively, in their names and anonymously during the ousted AL regime. These loans have started becoming defaulted, further straining the financial system.
The defaulted loan figure was Tk 2,11,391 crore at the end of June 2024, Tk 1,45,633 crore in December 2023 and Tk 1,55,398 crore crore in September 2023.
The figure has ballooned by Tk 2,62,737 crore over the past 15 years since 2009 when the Awami League had assumed power.
