Bangla Thursday, August 13, 2020

Fast eroding faith in Bangladesh’s financial sector

As the health of Bangladesh’s financial institutions continues to decline, government’s measures to arrest it have not worked well. In explanation, experts point to over-riding factors such as structural limitations, low competence and political influence. 

The result is high anxiety among depositors, poor performance and impunity of sector managers. These lead to a serious lack of confidence in the sector as a whole. 

Mind boggling corruption is either overlooked deliberately or the situation is beyond the capacity of the regulatory bodies to control. 

Facing increasing criticism and public hostility, the government has declared that it will form a committee to set matters right. Top experts have welcomed this, but have also warned that unless the committee is allowed to function independently, it won’t be able to deliver. 

Criticizing critics 

The esteemed Centre for Policy Dialogue (CPD), led by Prof. Rehman Sobhan, the most revered economist in the country, has been very critical of many such government policies. The government in turn has accused CPD of proximity to the Opposition. But as a technical body rather than a political outfit, coupled with high prestige and visibility, most people have more confidence in CPD’s words than in those of most government spokespersons. 

Hence , the recent statement of the CPD that a small coterie of banks are holding the financial sector hostage has more takers than the claim by the Finance Minister that he is considered one of the best Finance Ministers in the world. 

CPD’s Dr. Debapriya Bhattacharjee said that the organization had demanded such a commission almost eight years back when a major scandal (the Hallmark scandal involving Sonali Bank, a public sector bank) rocked the sector and accelerated corruption. At that time, the Finance Minister became (in) famous for dubbing the scandal as “peanuts”. He failed to set up an oversight committee. 

The banking sector has been left unattended since it grew in the 1980s. Scandal after scandal hit the sector, too many to count in fact. The crisis has become serious now, as almost all banks face a serious liquidity crisis. Several banks and non-banking financial institutions are on the verge of tumbling. 

Theft, influence and connections 

Two cases are illustrative: One is the liquidation of the Farmers Bank, and its subsequent rebirth as Padma bank. It was owned by a powerful minister of the then cabinet, Mohiuddin Khan Alamgir. It crashed taking away millions belonging to ordinary depositors, not to mention government’s deposits. Subsequently, it was refloated by one Md. Ehsan Khasru, who some say, is close to the ruling circle. 

Meanwhile, a Non Banking Financial Institution (NBFI)) called People’s Leasing, went under, taking with it the investment of many. In fact, most leasing companies are in terrible health. Most financial observers think that the influence-based licensing system is responsible for the crisis. 

While the government has said that it will not tolerate mismanagement, Bangladesh Bank has not shown the capacity to oversee their functioning of the financial sector. Many of them are now in the red with almost no public confidence in them. 

The government has permitted a new leasing company to start operating. The owners of this happen to be the owners of the resurrected Padma Bank. The sponsors have said that they have learned their lessons well from the failures of others. But it is opening at a time of high mistrust and concern that influence matters more than economic health indicators in Bangladesh. 

Wild West financial sector 

A kind of Wild West atmosphere pervades the financial sector, where those in charge can get away with murder. The case of Haldar, a businessman who stole Tk. 350 billion from the International Leasing Company and others institutions allegedly with the help of accomplices in the Bangladesh Bank and ran away to Canada, is a good example. Few believe that he will be caught or the money will be recovered. 

Meanwhile, the High Court has ordered the seizure of passports and properties of the Directors of ILC suspected as being accomplices. A senior banker, Ibrahim Khaled, has been appointed as the independent Chairperson of the Board. 

Merger of weak or collapsed financial institutions, is now being discussed again. Meanwhile, the government’s decision to reduce the interest rate on saving instruments and decreasing the limit of its holdings, have hit the principal depositors, namely, the lower income group looking for a safe place to invest.

The Finance Minister has said that this is being done to reduce the bank interest rate to a single digit but the mode of doing so has hit the middle and the poor classes. Apparently, the rates are now being reconsidered due to its unpopularity. 

However, the rich, many of whom are money launderers and loan defaulters, don’t feel the pressure to look for safety unless they have committed grave criminal acts like Haldar. Even then, they can safely run away. Most have laundered money abroad and built safe havens elsewhere. But for most low income depositors, the government appears to have taken some pains to reduce their options and security. 

The rich-friendly financial managers in a country of non-rich people create structural contradictions which can become a major obstacle to improving the health of the financial sector