Banking sector is considered to be the heart of a healthy economy. This is especially true for a developing country like Bangladesh. Since independence, this sector has kept the wheel of the economy moving forward. So it's natural that any disruption in the sector will lead to effects in the economy of the country.
In recent times, the banking sector has received a lot of flak for its rising non-performing loans (NPL), the lack of good governances, political influence in banking procedures, money laundering and malpractices by some bankers. This has inevitably affected the efficiency and productivity of the sector, as well as constraining businesses and industries that truly have the potential to grow and become a pillar of strength for the economy's long-term growth.
The banking sector has many times been tarnished by several unwanted malpractices. Incidents like the Hallmark scandal, Crescent Group incident, AnonTex Group loan, Bangladesh Bank cyber heist and others have impacted the image of the banking sector both within and outside the country.
NPL is one of the prime concerns that can harm the financial health and stability of the banks. According to data from Bangladesh Bank, the amount of toxic loans increased to 11.23 per cent to Tk 993.7 billion at the end of the third quarter of the year 2018. NPLs now account for 11.45 per cent of the total loans, up from 10.41 per cent in June of last year. Half a dozen state-owned banks are the worst sufferers of default loans amounting to Tk 480.80 billion as of September 2018, up by 12.20 per cent from three months earlier. On the other hand, the default loans of 40 private commercial banks stood at Tk. 436.66 billion, up by 12 per cent from that of the end of June, 2018. A major challenge for the government would be to cut down this upward rise of the NPLs as soon as possible. For this, the government should extend its helping hands to the banking sector and give exemplary punishment to the intentional defaulters.
Finance Minister AHM Mustafa Kamal's statement immediately after his appointment: "There will be no default loans from today" shows his firm commitment to redress the damage.
Good governance is a key issue that is lacking in the banking sector. Corporate governance deteriorates when one or more banks do not practice transparency, accountability and compliance in their corporations. The quality of governance can affect the financial soundness indicators such as asset quality, capital adequacy ratio, liquidity, earning capacity etc. Management of the banks should keep a close eye on the operation of the bank and its branches to ensure proper corporate governance within the organisation.
Bangladesh is a land of 170 million people. Half of its population still do not have a bank account. This is not in line with the national financial inclusion strategy (NFIS). Currently, there are fewer than 10,000 bank branches in the country. The number of bank branches need to be increased to bring the unbanked people into the financial system. Agent banking, the alternative delivery channel and an initiative by Bangladesh Bank to bring the disadvantaged and poor people into the financial system, is becoming popular because of its benefits for both the banks and clients. Dutch Bangla Bank Limited (DBBL), Bank Asia, and Al Arafah Islami Bank are occupying most of this market. Realising the importance, many banks have taken the licence for agent banking. But they are yet to initiate full-fledged service in this area. Initiatives should be taken to make agent banking initiatives mandatory for all banks.
Minimisation of risk of information technology (IT) is another major challenge for the banking sector. Now all the private banks and their branches are 100 per cent equipped with Information Technology (IT). State-owned banks are also trying to make all their branches have updated IT products so that their accountholders and customers can get the best possible service. The banking sector has embraced IT, but it is yet to ensure cyber security and risk management techniques. According to a research on cyber security of the banks in Bangladesh by Bangladesh Institute of Bank Management (BIBM), nearly 52 per cent of all the banks are facing a high risk of cyber attacks. Another research has revealed that 80 per cent of the banks in the country do not have relevant staff skilled and efficient enough to withstand cyber attacks. It is urgent to develop systems that can keep the banking information, servers etc. safe from potential cyber attacks. Additionally, the human resources of the banks should be equipped with updated with IT knowledge and skills related to cyber security.
Amendment of existing laws related to banking is a must, especially the Banking Company Act 1991; Negotiable Instruments Act 1881; Money Loan Court Act 2003 and Bankruptcy Act 1997. Some provisions of these laws provide protection to the habitual defaulters. As such, the NPLs are continuously piling up. It is commendable that Bangladesh Bank has taken initiatives to amend these laws.
Like most other sectors, banking sector lacks properly skilled workforce. For effective and smooth operation and management of bank, trained and skilled employees need to be developed. Every bank must develop its own training and development centre to impart regular training to employees. Besides, Bangladesh Institute of Bank Management (BIBM), Institute of Bankers, Bangladesh (IBB) and Bangladesh Bank Training Academy (BBTA) organises regular training for the bank officials at different levels. Bankers should participate in these training programmes. Bank management should encourage their employees to attend these programmes.
Banks have significantly increased in number, but their service is yet to reach the vast majority of disadvantaged and low-income groups at affordable costs. Banks should focus on bringing these people under the umbrella of banking services. Additionally, asset quality management and financial performance need to be improved drastically by ensuring good governance, transparency, accountability and adopting better risk management techniques.
Md. Naimul Hossen is a Management Trainee officer at Mercantile Bank Limited.
