Banking commission in Bangladesh

Banking commission in Bangladesh is the demand of  CPD and other citizens to address the woes of banks in Bangladesh.

In view of the deteriorating performance of the banking sector, the Centre for Policy Dialogue (CPD) has brought the issue of improving the governance of the sector in the public domain through in-depth research and dialogue. Back in 2012, following the Hallmark scam in Sonali bank, CPD urged the government to set up an interim banking commission. The SCBs could not maintain a minimum total capital adequacy ratio of 10 percent in 2019. The expenditure-income ratio is high, both in the SCBs and the PCBs. To put it simply, for earning one Bangladeshi taka, the SCBs have to spend 80 paisa, the PCBs have to spend 77 paisa and the foreign commercial banks (FCBs) have to spend 45 paisa. On the other hand, returns on asset in the SCBs is negative implying that they are exhausting their capital. The average standard is that every Tk 100 should be able to make a return of Tk 2. The return on asset in FCBs is 2.6 percent. But for the SCBs, it is (-)0.8 percent and for the PCBs it is 0.7 percent.

On the other hand, bad borrowers are being rewarded through various favourable measures which could demoralise the disciplined borrowers.

 There are several issues attached to an effective commission.

The objectives of the banking commission should be very specific. These should be to: (i) critically assess the overall situation of the sector; (ii) establish transparency regarding data and information on the sector; (iii) detect the root causes of the problem and possible future challenges; (iv) identify which groups and institutions are responsible for the crisis of the sector; and (v) make meaningful and specific suggestions on administrative, regulatory and structural reforms for the short and medium term.the commission should adopt an inclusive and participatory methodology to prepare its report which should involve: (i) desk research based on existing data and information; (ii) separate meetings with select group of people; (iii) expert consultations; (iv) organisation of public dialogues and hearings; and (v) exchange of views with all stakeholders that include policymakers, entrepreneurs, general customers of banks, small and medium businesses, small savers, experts, bank officials, economists, representatives of organisations related to banks, women, youth, representatives of grassroots organizations and media.

Bangladesh government started the liberalization process through denationalizing the nationalized commercial banks in the 1980s. The reform process continued during the 1990s and the 2000s under the directions of the World Bank and the IMF.

In addition to these reforms, the National Commission on Money, Banking and Credit was constituted in 1984. In 1996, a banking commission and in 2002, a banking reform committee were formed. In 2003, the Central Bank Strengthening Project was carried out for a strong and effective regulatory and supervisory system for the banking sector. The Bangladesh Bank Amendment Bill 2003 was passed in the parliament, through which Bangladesh Bank received the autonomy to operate on its own. Unfortunately, Bangladesh Bank has totally lost its independence, despite such a mandate.