Banking sector ills expose structural weaknesses

Imran Khan · Jan 4, 2023

Banking sector ills expose structural weaknesses

Published: 00:00, Jan 04,2023

THE year 2022 that has gone by has been a bad time for the banking sector because of a horde of problems manifest in loan scams, irregularities, the loss of depositor’s confidence, an absence of democratic governance and blanket privileges offered to wilful defaulters. All this brings to the fore the structural weaknesses of the sector that experts believe are but the manifestation of the regulator’s inadequacy that has resulted either from political considerations or the moneyed clout. Many of the problems that have plagued the banking sector have not happened in a year. The government and other relevant public agencies which were to take corrective measures in the national interests, rather, appear to have deplorably failed to make even a meaningful move in 2022. All this, in turn, has left a horde of responsibilities for the government to seriously attend to certain issues in 2023 to keep the banking sector sound. Loan scams that happened in Islami Bank, Social Islami Bank and First Security Islami Bank in 2022 only made the list of earlier loan scams long. Islami Bank alone has run to a loan scam of Tk 300 billion at the hands of the Chattogram-based S Alam Group, which a central bank audit report says is entitled to a loan amount of Tk 2.15 billion.
While such scams have eroded depositor’s confidence, prompting many to withdraw their deposit from banks, the central bank has come to be severely criticised for having a hand in such scams by way of its lack of intervention. The pressure of inflation and low interest rate offer have held back the growth of deposits in scheduled banks, which increased by only 8 per cent to about Tk 15763.7 billion by the July-September quarter, the lowest in five years. Most of the banks could not open letters of credit because of the dollar shortage, with the foreign exchange reserve having dropped to $44.36 billion on January 6, 2022 from a record $48.09 billion in September 2021. The reserve declined to $33.83 billion on December 28, 2022. The central bank sold more than $6 billion to banks in July–November while it had put in $7.62 billion into the financial market throughout the 2022 financial year, as official data show. The exchange rate for the dollar increased to Tk 107, from Tk 84.4, in a year and the central bank allowed a floating rate of the dollar on September 14. The amount of non-performing loans surged to Tk 1,343.96 billion by September while Tk 1,185.53 billion turned out to be bad loans. Experts believe that the actual amount of loans in default could exceed Tk 2,000 billion as regulatory forbearance sharply reduced the amount of loans in default on paper. While all this happened, the central bank extended undue favour to wilful defaulters and did not take the required action against them.
The central bank failed to take the regulatory action that the situation demanded of it, prolonging the battered condition of the banking sector. The government must take corrective measures to fish out the banking sector and punitive action against the people, quarters and entities for such a deplorable state of the banking sector.

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