The Bangladesh Bank (BB) Governor Ahsan H Mansur yesterday said the central bank has proposed that the government keep two state-owned banks and merge the others.
Bangladesh currently has 61 banks, which is far more than necessary, and 10 to 15 banks would be sufficient for the country, he said.
It would be easier to ensure good governance if the number of banks were reduced, he said while speaking at a public lecture titled “Banking sector: current challenges and future challenges”.
The Bangladesh Economic Association (BEA) and the Department of Economics at Jagannath University organised the lecture, which was chaired by BEA Convener Prof Mahbub Ullah.
The governor made the comments at a time when the BB is merging five troubled shariah-based banks into a single entity in order to rescue the country’s financial sector, which has been strained by high default loans due to past irregularities and weak corporate governance.
Meanwhile, discussions regarding the merger of two state-owned specialised banks — Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank — are also underway, while Janata Bank, once considered healthy, continues to suffer from high default loans.
Mansur, a former official of the International Monetary Fund (IMF), said criminal activities, irregularities, family dominance, and weak governance have destroyed Bangladesh’s banking sector.
“The sector has collapsed due to the absence of proper governance,” he said, adding that reforms are urgently needed in all areas of banking.
Around Tk 3 lakh crore has flown out of the banking sector, a large portion of which was likely laundered abroad. Some $20-$25 billion was siphoned off through family control within banks, he said.
On non-performing loans, he said the default rate is expected to come down to 25 percent by March.
The governor stressed that personal or individual-centric decisions must not be allowed to influence the banking sector.
However, he warned that political interference could return to the banking sector if the amended Bangladesh Bank Order is not enacted.
He also said BB is working to establish a Bank Resolution Fund, which will collect between Tk 30,000 crore and Tk 40,000 crore. The framework will cover not only banks but also non-bank financial institutions.
Emphasising the need for a cashless society, Mansur said cash is the main channel for revenue leakage.
“If a cashless system can be established, annual revenue collection could increase by Tk 1.5 lakh crore to Tk 2 lakh crore,” he said, urging that every student be brought under formal banking services.
At the event, Jagannath University Vice-Chancellor Prof Rezaul Karim said the fragile condition of the banking sector has now become clear.
Jagannath University’s Economics Department Chairman Prof Sharif Mosharraf Hossain said the rising default loans have reduced banks’ capacity to disburse loans, which has, in turn, hindered investment.
He added that the banking sector needs to be brought under stricter monitoring in the future.