Merger of weak banks with strong banks is not easy

Even government policy makers admit that the economy is in trouble. But do you see any effective action plan to deal with the crisis? If not, what do you recommend?

Salehuddin Ahmed: First of all, policy makers and government officials should pay proper attention to this issue. In many cases they ignore these issues without paying attention to the sentiments of the public or experts. This trend should end. To overcome the economic crisis, there is a need for greater transparency and accountability as well as tough reforms. The integrity, dedication and efficiency of government regulatory and development institutions must then be ensured.

Bangladesh’s institutions have not shown any success in implementing policies and strategies, providing government services and addressing people’s grievances. This situation has to be controlled. The time has come for us to consolidate our positive achievements and move forward by removing the weaknesses mentioned. And public participation should be ensured in all areas.

Bangladesh Bank itself has said that the banking sector is in extreme crisis. It calls for a roadmap to reduce default loans and reduce the number of loans taken under false names and pretexts to zero. How successful do you think it will be?

Salehuddin Ahmed: Bangladesh Bank has introduced a roadmap with 17 initiatives to resolve the crisis in the banking sector, 11 aimed at reducing default loans and 6 aimed at establishing good governance. Defaulted loans have reached worrying proportions. In this regard the situation of public sector banks and specialized banks is pathetic. Some private banks are also in a very weak position. It will be very difficult to achieve the target of reducing total default loans by 2026.

Since 2009, according to Bangladesh Bank records, defaulted loans have increased from Tk 180 billion to Tk 1,450 billion. Simply coming up with a roadmap without addressing the cause of default loan increase is not enough to solve matters. Defaulted debt and good governance are inextricably linked. So if all 17 initiatives are not taken as a coordinated affair, they have little chance of being successful.

Another important point is that in the last one and a half decades, fluid policies and strategies have led to the current problems. These should be addressed and not limited to just 17 initiatives.

After such a long time, the minimum age of a bank director has been fixed at 30 years. Independent directors have been given certain rights. What effect will this have?

Salehuddin Ahmed: The instructions regarding age and experience of the director is a good initiative. But banks cannot be turned around just by relying on directors. As I mentioned earlier, the laws and financial regulations that we have have not been duly enforced. There are also some steps regarding independent directors. Taking steps only regarding their experience, honorarium and allowances will not have any impact. In many cases these directors are friends and acquaintances of the chairman and directors. His opinion is rarely taken into account in board meetings. Even their objections are ignored. Importance should be given to the experience and efficiency of bank officials at all levels for overall operation and management of banks as well as monitoring and investigation.

There is a family that owns five banks and many financial institutions. How did this happen? Doesn’t this create problems in policy formulation and implementation?

Salehuddin Ahmed: It is not at all appropriate for one family to control multiple banks and financial institutions. This leads to lack of good governance, transparency and accountability. In Bangladesh those who are in and around power or sector have a lot of influence in business and even in determining policies. They are even in cahoots with powerful political groups. This is the reason why the situation has reached this stage today. This increases the influence of businessmen on the financial sector and worsens the competitive environment.