The banking sector is in a bad shape as massive irregularities gripped most banks and non-bank financial institutions in 15 years. The sector ran, as the Centre for Policy Dialogue says, beyond regulatory control while the central bank favoured certain individuals and groups. The think tank says that Tk 92,261 crore was embezzled in 24 major banking scams in 2008鈥�2023. The embezzled amount equals 12 per cent of the national budget for the 2023鈥�24 financial year or 2 per cent of the gross domestic product. From approval for banks and the appointment of partisan people to the bank management and loan sanctions, the Awami League government pushed the banking sector into a precarious state with a few banks now being clinically dead and most banks being fragile. The defaulted loan, meanwhile, reached an all-time high of Tk Tk 182,295 crore in March 2024. The amount of total distressed assets is believed to be as high as Tk 3,77,922 crore if the amount of rescheduled and written-off loans is included. It is no wonder that renowned international credit rating agencies have downgraded their outlook on Bangladesh鈥檚 banking sector, citing a sharp increase in defaulted loans, scams, irregularities, mismanagement and undemocratic governance.
Economists believe that it is impossible for the banking sector to step out of the crisis unless the government and the central bank show the required will to discipline the sector. But what compounded the situation was that the previous government and the central bank were more willing to save the people responsible for the sorry state of the sector than to bring them to book. For example, when the banking sector was plagued with a rising default rate, which now stands at about 20 per cent of the total outstanding loans, the central bank offered one irrational concession after another to loan defaulters. The central bank, for example, relaxed the rules on loan classification and rescheduling several times. The borrowers enjoyed relaxed repayment scopes in 2020 and 2021, including a one-year moratorium because of the Covid outbreak. In July 2022, the central bank offered another big break to loan defaulters by way of opportunities to reschedule their loans for up to 29 years and reduced the amount of the down payment to 2.5 per cent of the loan amount outstanding. All the while, scams in loan disbursement continued, with shell companies receiving hefty amounts in loans without proper collateral and documents. The government, meanwhile, virtually remained silent about the issues, letting offenders go scot-free.
A lack of democratic governance and political influence were reasons for the worrying performance of the banking sector and an increase in defaulted loans, scams and irregularities. The interim government and the central bank must prioritise transparency, accountability and sound management practices in the banking sector. The authorities must also ensure that loans are sanctioned judiciously and loan defaulters, errant banks and officials are brought to justice.
