Economy

Accounts, assets of wilful defaulters must be seized: CPD

The Centre for Policy Dialogue (CPD) has called for closing the accounts of wilful defaulters and holding three former governors accountable for their roles in the beleaguered banking sector.

The main problem in the banking sector is non-performing loans (NPLs), which are deteriorating the asset quality of lenders and affecting liquidity, said Fahmida Khatun, executive director of the CPD, yesterday.

"The assets of wilful defaulters and their immediate family members should be liquidated, and their businesses should be temporarily nationalised," she said while presenting a paper titled "Navigating Expectations in Turbulent Times" during a briefing at the think tank's office on Tuesday.

The CPD organised the briefing to present its assessment of the state of Bangladesh's economy for the fiscal year 2024-25.

The banking sector, long plagued by political interference and weak regulatory oversight, is now at a critical juncture as the interim government attempts to implement reforms.

The CPD recommends blocking transactions of wilful defaulters by sharing their information with global financial networks such as Visa, Mastercard, American Express, and the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

"This would prevent them from conducting transactions abroad, ensuring accountability and deterring financial misconduct," according to the report.

The report also stated that three former governors of Bangladesh Bank, who undermined the banking sector's stability during Sheikh Hasina's 15-year regime, should be held accountable for their failures.

A bank resolution-type Asset Management Company (AMC) can help reduce NPLs. The merger of weak banks with strong banks is another option for improving the health of the banking sector, she said.

Merging weak banks with stronger ones can enhance the efficiency of weaker institutions. However, careful planning, transparency, thorough audits of weak banks, and proper consultations are required to avoid penalising stronger banks, she added.

She also noted that if weak banks are merged with stronger ones, not all employees will be retained -- some job cuts will be necessary. "This is a social cost that must be accepted."

The social cost would be much higher if the government allowed the closure of some strong banks, so mergers and acquisitions should be considered.

NPLs in Bangladesh's banking sector surged to Tk 284,977 crore as of September 2024, accounting for nearly 17 percent of total outstanding loans in the country.

This figure is 2.7 times higher than the combined budget allocations for education and health in the fiscal year 2024, underscoring the severity of the crisis.

"The opportunity cost is huge," Fahmida said.

State-owned commercial banks are the worst affected, with an NPL ratio of 40.35 percent.

The liquidity situation is equally dire.

Excess liquidity, which is crucial for banks to absorb unexpected financial shocks, has declined sharply.

The root cause of the banking sector's problems lies in weak governance and rampant political interference, she said, adding that board members of state banks and several private banks have historically been appointed based on political connections rather than competence, leading to poor decision-making and widespread corruption.

The independence of Bangladesh Bank, the country's central bank, has also been undermined.

Given the strong vested interest groups, an all-out effort must be made and sustained, backed by political commitment at the highest level, to continue banking reforms.

Additionally, the CPD recommends establishing specialised courts and tribunals to expedite the resolution of loan default cases.

At the event, Mustafizur Rahman, a distinguished fellow of the CPD, and Khondaker Golam Moazzem, Research Director of the CPD, were also present.

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Accounts, assets of wilful defaulters must be seized: CPD

The Centre for Policy Dialogue (CPD) has called for closing the accounts of wilful defaulters and holding three former governors accountable for their roles in the beleaguered banking sector.

The main problem in the banking sector is non-performing loans (NPLs), which are deteriorating the asset quality of lenders and affecting liquidity, said Fahmida Khatun, executive director of the CPD, yesterday.

"The assets of wilful defaulters and their immediate family members should be liquidated, and their businesses should be temporarily nationalised," she said while presenting a paper titled "Navigating Expectations in Turbulent Times" during a briefing at the think tank's office on Tuesday.

The CPD organised the briefing to present its assessment of the state of Bangladesh's economy for the fiscal year 2024-25.

The banking sector, long plagued by political interference and weak regulatory oversight, is now at a critical juncture as the interim government attempts to implement reforms.

The CPD recommends blocking transactions of wilful defaulters by sharing their information with global financial networks such as Visa, Mastercard, American Express, and the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

"This would prevent them from conducting transactions abroad, ensuring accountability and deterring financial misconduct," according to the report.

The report also stated that three former governors of Bangladesh Bank, who undermined the banking sector's stability during Sheikh Hasina's 15-year regime, should be held accountable for their failures.

A bank resolution-type Asset Management Company (AMC) can help reduce NPLs. The merger of weak banks with strong banks is another option for improving the health of the banking sector, she said.

Merging weak banks with stronger ones can enhance the efficiency of weaker institutions. However, careful planning, transparency, thorough audits of weak banks, and proper consultations are required to avoid penalising stronger banks, she added.

She also noted that if weak banks are merged with stronger ones, not all employees will be retained -- some job cuts will be necessary. "This is a social cost that must be accepted."

The social cost would be much higher if the government allowed the closure of some strong banks, so mergers and acquisitions should be considered.

NPLs in Bangladesh's banking sector surged to Tk 284,977 crore as of September 2024, accounting for nearly 17 percent of total outstanding loans in the country.

This figure is 2.7 times higher than the combined budget allocations for education and health in the fiscal year 2024, underscoring the severity of the crisis.

"The opportunity cost is huge," Fahmida said.

State-owned commercial banks are the worst affected, with an NPL ratio of 40.35 percent.

The liquidity situation is equally dire.

Excess liquidity, which is crucial for banks to absorb unexpected financial shocks, has declined sharply.

The root cause of the banking sector's problems lies in weak governance and rampant political interference, she said, adding that board members of state banks and several private banks have historically been appointed based on political connections rather than competence, leading to poor decision-making and widespread corruption.

The independence of Bangladesh Bank, the country's central bank, has also been undermined.

Given the strong vested interest groups, an all-out effort must be made and sustained, backed by political commitment at the highest level, to continue banking reforms.

Additionally, the CPD recommends establishing specialised courts and tribunals to expedite the resolution of loan default cases.

At the event, Mustafizur Rahman, a distinguished fellow of the CPD, and Khondaker Golam Moazzem, Research Director of the CPD, were also present.

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