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Late finance minister AMA Muhith had tried in vain to check the deterioration of the country’s banking sector prone to loan scams.
Finance Minister Clueless
It turns out that Muhith’s successor AHM Mustafa Kamal is almost clueless regarding the sector as his recent comments on loan scams, including over Tk 7,000 crore taken away by fictitious companies having links with S Alam Group, surprised all and sundries. Chattogram-based S Alam now enjoys control over more than half a dozen banks that included Islami Bank Bangladesh Limited. The group has amassed loans worth over Tk 1 lakh crore from the banking sector violating the rules of the Bangladesh Bank. It has taken loans worth around Tk 30,000 crore alone from the country’s largest private bank IBBL with BB playing the role of a mere spectator.
Evidences Sought
The most discouraging fact is the statement made by the current finance minister about the banking sector. On the other day, he said that they wanted specific evidence to look into recent loan scams in several commercial banks. He made the statement when reporters sought his comments on the extension of loans by some banks including IBBL to fictitious companies. The government can only probe into the matter if the evidence is specific, he said. His predecessor Muhith had, however, expressed concern over the hostile takeover of banks by S Alam in 2017. On November 26, 2017, Muhith told reporters that the government was looking into the financial sources of S Alam after its takeover of Social Islami Bank Limited.
Hostile Takeover
However, nothing could stop the S Alam group from establishing control over the banks one after another. On October 30, 2017, dramatic changes were made to the board and management of Social Islami Bank Limited that allowed S Alam Group to tighten its grip on the bank. By that time, the group had already established its control over First Security Islami Bank and Union Bank, and bought a significant amount of shares in Islami Bank Bangladesh Limited through a number of companies. S Alam Group is reportedly getting blessings from the incumbent government and has been awarded deals for major power plants.
Bad Signal for Economy
Policy Research Institute executive director Ahsan Mansur in a recent interview with a national English daily said that the groundwork of loan scams by S Alam was made in the past which becomes almost an open secret to economic policymakers of the government. BB cannot avoid the responsibility of allowing a group to win control over so many banks. The whole banking sector becomes a victim of foul plays by the group amid its borrowing frenzy. “So much borrowing by one group and the ownership of several banks by the group is a matter of concern for the country’s banking sector and the economy,” said Mansur, also chairman of Brac Bank.
Banking Sector in Manipulation
The concentration of a particular group on a specific area creates scopes for manipulation. The country’s banking sector has been infested with such problems since the entry of S Alam in the banking sector. A joke has already become popular that exposed the actual situation of the banking sector and its regulator. The joke says BB has allowed round-the-clock ambulance service for S Alam chief so that medical care can be ensured for the owner in case of emergency to keep him alive, lest the banking sector will collapse as soon as he dies. The banking sector can be destroyed by the activities of one person. Even the finance ministry was aware of the matter. But everyone remained silent. No one performed their duty. However, BB will also realise the matter if the International Monetary Fund incorporated a clause for it to follow supervision strictly in its proposed lending of $4.5 billion over a period of the next three years.
High Court Directive
Meanwhile, a High Court bench on December 4 directed the authorities concerned to probe the alleged loan scams in Islami Bank Bangladesh Ltd, Social Islami Bank Ltd and First Security Islami Bank. Mohammed Saiful Alam, chairman of S Alam Group, is the chairman of First Security Islami Bank while people linked with the influential businessman currently control IBBL and SIBL. The Anti-Corruption Commission (ACC), the Bangladesh Bank, the Bangladesh Financial Intelligence Unit (BFIU), and the Criminal Investigation Department of Police were asked to submit probe reports to the court by April 5. The bench asked S Alam Group to come up with explanations on the reports that it took Tk 30,000 crore from IBBL and to place relevant documents in this regard before the court.
Reservations
However, the court order is not beyond any reservations. Questions have already been raised about whether such a directive will bring about necessary changes in the banking sector run politically. Will the directive help in recovering the fund in question? Or, will it ensure proper punishment for bankers involved in the extension of shady loans? Or will the directive put an end to loan irregularities that have hamstrung the banking sector for a long? The general people want to be convinced that the HC directive will lead to the restoration of people’s faith in banks. They do not want to face a situation that compels them to withdraw money from the banks.
Panic Withdrawal
Already many banks, especially those following the Islami banking style, have faced liquidity shortages. Outgoing principal secretary Ahmed Kaikaus lamented that Tk 50,000 crore was withdrawn recently by panicked savers against the backdrop of loan scams by S Alam. At a seminar arranged by Bangladesh Institute of Development Studies, he blamed speculation triggered by reports and opinions on S Alam loan scams in the media. But his stance was not enough to convince bank account holders to put back their faith in banks. It should be considered that the savings of account holders comprised 80 per cent of a bank’s capital.
Liquidity Support
Meanwhile, the Bangladesh Bank has sanctioned Tk 5,250 crore in liquidity support recently after it introduced a financial instrument named Islamic banks liquidity facility for the Shariah-based banks in Bangladesh. The instrument has been introduced to lend cash support to them at times that coincided with the current liquidity crunches faced by the many Shariah-based banks due to loan scams in IBBL. However, such measures by BB may put the liquidity crisis under the carpet for a time being. It will not be enough to free the banking sector out of problems. The government too had provided liquidity support to the scam-hit state-owned banks with public funds. About Tk 10,666 crore was provided as bailout funds to the state-owned banks in three years since 2014-15 to meet capital shortfalls stemming from loan scams. Scam hit BASIC received the highest amount of bailout fund of Tk 3,390 crore, Sonali received Tk 3,003 crore, Janata Tk 814 crore and Rupali Tk 240 crore. But they could not overcome problems on NPL.
NPL Plagues Banks
As of June 2022, scam-hit Janata Bank held the highest amount of defaulted loans, Tk 17,263 crore, which is 24.9 per cent of the bank’s total outstanding loans. Sonali suffered the second highest, Tk 12,125 crore, in defaulted loans with the NPL reaching 17.7 per cent of its outstanding loans. Agrani Bank held the third highest amount of defaulted loans, Tk 10,557.72 crore, representing 17.23 per cent of its outstanding loans. State-owned BASIC Bank’s defaulted loans stood at Tk 8,249.23 crore at the end of June 2022, representing 58.86 per cent of the bank’s outstanding loans. Rupali Bank’s defaulted loans reached Tk 6,465.63 crore, accounting for 17.26 per cent of its total outstanding loans.
Sound Economy key to Political Stability
The policymakers must understand that the economy with its banking sector overburdened with NPL cannot perform well. They also must understand that economic stability is key to political stability.
