Break govt-oligarch nexus to fix banking sector

Restoring discipline in the banking sector will remain a pipe dream unless the “kleptocracy” power structure is dismantled and the connection between the state and oligarchs is severed, said National Professor Mahbub Ullah yesterday.

He made the remarks at the 23rd Nurul Matin Memorial Lecture, titled “Ethics in Banking”, organised by the Bangladesh Institute of Bank Management (BIBM) at its auditorium in the capital.

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He said big businesses’ control over key economic value chains and supply systems makes political authorities reluctant to antagonise them.

He said thousands of crores of taka were looted from banks and sent abroad during the Awami League rule through a nexus involving its ministers, unscrupulous businessmen and some Bangladesh Bank (BB) officials.

Mahbub Ullah said a revolving fund is the driving force of a bank.

“A bank lends money, the instalments and interest on those loans return to the bank, and the bank uses that money to provide new loans. But with more than 32 percent of loans becoming classified, this cycle has completely broken down in Bangladesh,” he said.

“In simple terms, one taka out of every three taka deposited by depositors is now stuck in the market,” he said, adding that the same situation prevails in the financial institutions sector and the stock market.

Calling the financial sector “severely sick”, he said the situation had become so bad that distressed banks were unable to repay depositors’ money.

Mahbub Ullah said rules were manipulated to allow bank directors to borrow from banks other than their own.

“Several banks have had their rules and regulations twisted in full view of the regulators,” he said.

The banks he named were EXIM Bank, Islami Bank, Social Islami Bank, National Bank, IFIC Bank, First Security Islami Bank, Union Bank and Global Islami Bank.

He said the Bank Company Act had been amended to allow loan defaulters to obtain fresh loans.

“Given the situation, it appears that an interconnected nexus or collusion had developed to siphon money out of the banks,” he said. “Without such a nexus, it would not have been possible to loot thousands of crores of taka from the banks.”

BB Governor Md Mostaqur Rahman said the first step towards breaking the nexus was to limit the control of any single family or group, remove political figures from bank boards and legally establish the true ownership of accumulated wealth.

“A bank does not belong to any individual. Rather, it belongs to the countless depositors who entrust their money to it and, ultimately, to society and the state. We are firmly committed to translating this principle into reality.”