Editorial
Rationale for new banks
Heed the advice
Not only the IMF but also many in Bangladesh do not concur with the idea of the government of allowing new commercial banks. And there are very good reasons to feel that the present 47 banks in Bangladesh are enough to meet our requirements. In fact the central bank had initially objected to the idea, but seems to have wilted under political pressure. Reportedly, majority of the board members had strongly opposed the idea of allowing new banks during last Wednesday's meeting.
As it is, Bangladesh Bank's (BB) supervisory capacity is inadequate to oversee the functioning of the existing banks. And the BB's structure will have to be strengthened before its oversight responsibilities can be expanded. But more than that, we find the underlying consideration behind the move totally out of place and time.
Surely, political consideration cannot be the motive for economic and commercial ventures. If one were to accept the arguments of the proponents of the idea that it will make the industry more competitive, we are not aware of any BB study that has found the need for new banks at the moment. And going by the admission of the finance minister himself one can assume that this is likely to be another instance of crony capitalism, so much so that there is at least one case where signpost of a new bank in a office had already been put up even before getting BB's approval.
The arguments for new banks, and we do not know as yet how many there will be, further falls flat in the face of liquidity crunch and overcrowded market, which experts have also referred to. And when one considers the paucity of banks in the rural areas the idea seems to be even more incongruous.
There is merit in the arguments against new banks at the moment including the possibility that it may not command the confidence of investors, these being allowed under political pressure and therefore may not be operated on any sound banking principales. The government should have a rethink.
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