Political influence making Bangladesh Bank ineffective: Without structural overhaul, our nation’s ambitions are at risk

The Daily Star  September 24, 2020

A Transparency International Bangladesh (TIB) report on the banking sector, unveiled recently, paints a grim picture of the state of the financial sector of Bangladesh. According to the report, the central bank has become an ineffective entity in containing defaulted loans due to immense political pressure and illegal interventions by some large business groups. TIB also warned that due to the influence of vested groups on Bangladesh Bank, the entity enjoys autonomy on paper only, and is mired by a lack of corporate governance and corruption amongst a section of its officials.

This observation may come as no surprise, but the seriousness of the situation cannot be overlooked. It is not just a lack of monitoring by the central bank over the past decade leading to defaulted loans that is the issue here, but also the fact that delinquent borrowers have been given a free pass as a result of political pressures. In some instances, it has actually been made easier for them to carry on their misdeeds, such as the relaxed rescheduling facility offered by Bangladesh Bank last year which allowed delinquent borrowers to regularise non-performing loans and artificially bring down the amount of defaulted loans.

On top of that, the finance ministry’s control over state-run banks and its influence over appointments, allegedly based on political considerations only, have created a conflict of interest and further weakened Bangladesh Bank’s autonomy. This has been exacerbated by government influence, and the influence of some prominent business groups, on appointments within the central bank as well. The end result has been a total lack of transparency and accountability as well as impunity for the “influentials”, despite their involvement in corruption.

The responsibility for this sorry state of affairs lies completely at the doors of the government. A democracy is entitled to an autonomous state bank and financial regulatory authority, yet ours is completely under the grip of political influence. This is not simply a stumbling block for the financial sector; an ineffective central bank is also a fundamental weakness in our entire economy that can potentially jeopardise our goal of becoming a middle-income country by 2021. The question is: will the authorities allow our nation’s ambitions to be thwarted, simply for the benefit of an elite few?

We urge the authorities to take immediate steps and adopt the report’s recommendations—form a banking commission to bring a stop to loan defaults; amend the Bank Companies Act so that Bangladesh Bank can supervise state-run banks; formulate regulations on appointment and withdrawal of Bangladesh Bank officials; and bar persons involved in politics from holding any posts in state-run and private banks. Without these measures and a complete overhaul of the central bank’s governance structures, the consequences for our banking sector will be nothing short of dire.

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