THE statement of the Bangladesh Bank governor that no efforts for reforms in the banking sector will be effective unless political interference is completely eliminated entails a couple of points to ponder. Although the statement is something that many experts have repeatedly made, still the statement coming from the governor once again, especially in the changed political context, is welcome. Yet, it carries an undercurrent. Whilst it means to say that political interference in the working of banks, in the appointment of directors on the board and in the disbursement of loans, especially during the decade and a half of the Awami League government, overthrown in a mass uprising in August 2024, has enabled widespread financial irregularities in the banking sector and pushed the banking system almost beyond reparations, it suggests that such political interference may still be present, considering the passage of more than 11 months of the interim government. And, such a situation also suggests that the Bangladesh Bank, as regulators of the banking system, has already enough of hoeing the row that it should accomplish at the earliest to put the banking system back on track.
The governor has said that the situation has declined to such a pass that in some banks, more than 90 per cent of the loan portfolio has become non-performing, thus, creating a severe stress on liquidity so much so that in some cases, depositors face delays in the withdrawal of funds. The governor has said that neither the banks nor the regulators, the central bank, could stop the massive malpractice that plagued the banking sector because of protection extended to wrongdoers on political considerations, also noting that mere institutional reforms will not work without internal reforms. In the light of deep-rooted problems, the governor has said that the Bangladesh Bank has proposed amendments to the Bangladesh Bank Order. The amendments are meant to arm up the central bank with greater operational independence and the legal authority to head off political pressure in regulatory affairs. He has said that on a review of the asset quality of six banks, discussions have begun on the merger of five banks. The governor has listed some important initiatives to improve regulatory oversight and discipline in the banking system. And, a major step is the implementation of a risk-based supervision framework, which has already begun in 20 banks. The system is meant to allow central bank to focus on institutions with the greatest risk to ensure effective oversight.
The authorities must, therefore, effect reforms, both institutional and internal, to keep off political interference to restore health to the sector. This should also serve as a warning for the working of banks in future.