Alarm bells rang louder Saturday from economists' meet for immediate reform to restore discipline in Bangladesh's banking system, seen largely ridden with irregularities.
Financial-market analysts made the clarion call for urgent action specifically to stem the tide of non-performing loans and other forms of fraudulence and safeguard clientele interests.
On a note of concern over present lending arrangements in the banking system, they said nearly half the banks of the country would face closure if the process of approving loans and disbursement were audited accordingly.
They also suggested strict screening of investment by banks through further empowering the regulator and expansion of investment in green and social sector to ensure sustainable banking.
The suggestions and observations came in a plenary session titled 'Economics and Ethics: Banking Issues' on the final day of the three-day-long BEA (Bangladesh Economic Association) 20th Biennial Conference 2017.
Presenting a paper on 'Ethical Banking: Bangladesh Perspectives', BB Deputy General Manager Md. Golzare Nabi said though Bangladeshi banks attained immense success in credit delivery, but, at the same time, risks intensified.
He noted that bank-loan concentration in trading sector is about 35 per cent while a small portion (around 6 per cent) of investment goes to social sectors like agriculture, poverty alleviation, education and health. It's "not a good sign".
At the same time, he said, existence of 10 percent non-performing loans (NPLs) remains a great concern for all stakeholders. The NPL size is much higher than that of India (4.34 per cent), Thailand (2.88 per cent), the Philippines (1.95 per cent), China (1.74 per cent), Malaysia (1.65 per cent) and Hong Kong (0.9 per cent).
"The banks must comply with all laws, rules and regulations and ensure fair and equitable treatment to all stakeholders, disclosing full information on financial health," he told the meet.
Partha Sarathee Ghosh, Senior Executive Officer of United Commercial Bank (UCB), said in order to repair the damage and mistrust cultivated in the years leading up to the crush, the banking industry as a whole must reform.
"Now it is the time for all banks to rise to the occasion and consider a more sustainable approach to banking. If we all viewed money as a tool for enhancing society rather than purely for maximizing profits, it would go a long way to restoring the industry's image," he added.
Moderating the programme, eminent economist and former Chairman of the Department of Economics of Chittagong University Dr. M. Sekandar Khan said the story of the banks would be different if the bank authorities maintained ethics in their operations.
Citing media reports, he said half of the country's banks would not be in a position to continue their operations if their functioning were audited properly.
"The banks are still influencing the auditors. They are trying to cover up their liabilities by various means, and such acts of a few banks got exposed," the Economics professor told the audience.
Professor Khan went on: "It is a matter of great concern for us when we saw that ethics of economics are applied in unethical ways."
About bad loans, Executive Vice President of EXIM Bank S.M. Abu Zaker said the main reason for the growing NPLs is the conventional banks cannot ensure the purpose of the loan but the situation is different in the Islamic banking system.
"Islami banks are called asset bank financing. Such banks will not release fund unless ensuring assets of the loanee," he said.
In the non-Islamic banking system, he explained, the loan-seekers can withdraw maximum cash worth Tk 50 million at any time by placing OD (overdraft) facility. "But there is no scope of the bank to check where the fund is used accordingly, intensifying the risk of bad loans."
Talking about stock-market scenario, Md. Toufique Hossain, Lecturer at the Department of Business Administration of Royal University of Dhaka, said there were two reasons behind the latest share-market debacle of 2010. One is banks' overexposure to the capital market and the other market was excessively dependent on the banks.
Since then, he mentioned, the central bank has set banks' exposure limit to the share market at 25 per cent but recent data as of August 2017 showed exposure limit of some banks reached 26 per cent, which is not a good signal for the market.
Mr. Hossain called upon the regulator to take care of the matter immediately before things go out of reach.
Md. Liakat Hossain Moral, General Manager of Bangladesh Krishi Bank that invested the highest 30 per cent of their capital in rural areas, said they provided loans at 9.0 per cent interest while their cost of fund is 10 per cent.
"So, the gap needs to be fulfilled by government subsidy because it ensures sustainable financing in the rural areas. That's why we're a losing concern," he added.
The three-day biennial conference of the BEA came to an end in the afternoon with remarks by Deputy Speaker of Parliament Advocate Md. Fazle Rabbi Miah who put emphasis on practice of ethics to make a sustainably developed Bangladesh.
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