Govt. stance on banking sector

An economic review of this fiscal year by the private think-tank CPD has highlighted that the government stance on the banking sector – in particular its decisions to recapitalise state banks despite their financial malpractices and to reschedule bad loans –will have a negative impact on the economy and the banking sector.

Last week, the government provided Tk. 1,500 crore to the two most-scam hit state banks – Sonali and BASIC – to meet their large-scale capital shortfall. Meanwhile, the loans ofBeximco Group, Janata and Sonali Bank have been rescheduled.

These actions are troubling for a number of different reasons. The recapitalisation of state banks raises questions about allocation of public resources to keep afloat organisations encumbered by corruption, malpractices and lack of accountability. Capital infusion in the past year has seen no improvement in state banks. The government has continued to not hold high-up officials of scam-hit banks, reported to be involved in the malpractices, accountable; rather, by funneling tax-payers' money to these institutions, the government is essentially rewarding them and fostering a culture of fraudulence.

The government is not only recompensing public institutions, but also selected private institutions who curry political favours, and hence can engage in malpractices with impunity. The concentration of outstanding loans in the hands of a few business groups, as CDP suggests, will further weaken the banking sector.

The lack of oversight in the banking sector and the rewarding of defaulting institutions need to be checked immediately if confidence in the banking sector is to be restored. Concrete steps must be taken to prevent, rather than encourage, financial malpractices.