Contemporary Issues in Banking Sector in Bangladesh
Few days back Bangladesh has primarily entered in the list of developing countries of United
Nation. It is obviously positive news for Bangladesh. But it is a matter of great regret that even
after about 47 years of liberation, Bangladesh is still in a nascent stage in terms of developed
financial system. Its two capital markets are very much weak, which already have seen major
collapses two times i.e. in 1996 and 2010. Hence, the main source of fund for private sector
investment is banking industry. But due to political influences in various levels, corruption,
unhealthy completion etc. banking sector is now in big trouble. For few months banking industry
of Bangladesh is suffering from liquidity crisis. The Present Crisis of the Banking Industry of
Bangladesh are:
1.Unethical practices/corruption:
It is one of the main obstacles of our banking sector and one of the prime causes of non-
performing/default loan. The cases like loan sanctioning, loan monitoring, evaluating of
collateral, loan appraisal, loan take-over, restructuring, loan rescheduling, and in some others
cases this unethical practices and nepotism are noticed.
2.Lack of skilled manpower/management:
The use of sophisticated technology by banks there not enough skilled manpower/management in
many banks. This problem is especially large in public banks.
3.Weak monitoring/supervision of Bangladesh Bank:
It as one of the major causes of the present crisis in banking industry of Bangladesh. Lack of
timely monitoring and actions also one of the big reasons behind the present bad condition. Some
of the present guidelines and rules should be amended to effectively control the banking industry
of Bangladesh.
4.Fund transfer to outside of the country and diversification:
Fund transfer and diversification are also major causes behind the present crisis scenario of
banking sector. Through over invoicing or money laundering fund commonly are transferred to
the outside of this country. Again, according to them, taking loan mentioning for one purpose
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and whereas using for other purposes i.e. purchasing land or some risky assets, is also one of the
big causes of default loan.
5.Low remittance:
Due to mainly downturn in export of RMG product our remittance income is n’t so good. Again,
major parts of our remittances is not coming using formal channel. That is why pressure has been
created in dollar price. That is further intensifying liquidity crisis of banks.
6.Excess number of banks in Bangladesh:
Presently there are 57 scheduled banks in Bangladesh. This number as excess for the economy of
Bangladesh. The present aggressive banking problem as one of the negative outcomes of the
excess number of banks in this economy.
7.Low quality of assets:
Banks are not becoming able to find out good quality sectors for their investment. After
downturn in RMG sector and reduction of FDI in Bangladesh, this problem has been further
intensified. So, it is another cause of increasing non-performing loan.
8.Lack of advanced technological use:
Banking sector is still in backward position compared to some neighboring countries. That is
why we didn’t be able to protect our central bank’s reserve from hacking.
9. Political influence:
The present crisis in banking industry as a long-run outcome of the political influence. The
followings as key ways of influence: Giving license of new banks in political perspective,
appointment of board of directors (note: respondents indentified it as most influential factor),
priority of political identity during loan sanctioning, giving special facilities in loan
recovery/restructuring/rescheduling to politically affiliated defaulters, lack of tendency of
remarkable punishment to them etc.
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10.Lack of sound monitoring of the loan:
Sometimes banks are reluctant to this issue. The following factors are mainly responsible for this
barrier: - unethical practices and nepotism, political affiliation of borrowers, lack of proper
training etc.
11.Lack of good governance, accountability, and transparency:
It as an acute problem of banking industry of Bangladesh. The directors/chairman/management-
all should be accountable/ responsible for non-performing loan. The recent scandals of banking
industry like Hallmark-Sonali Bank; director conflict and default loan of Basic Bank, crisis of
Farmers Bank, Anon Tex Group’s loan distribution issue by Janata bank etc. are the outcome of
the lack of good governance, accountability, and transparency.
12.Default tendency of the borrowers to repay the loans and lack of remarkable
punishment:
Many of our respondents identified this point as a prime cause of intensifying the crisis of
banking industry of Bangladesh and reaching such an alarming position today.
13.Loan rescheduling and restructuring: In this regard misuse of political power, corruption,
and nepotism hindering the prime objectives of rescheduling and restructuring of loan.
14. Unstable capital market:
Some of our respondents highlighted that, due to unstable capital market of Bangladesh, banks
aren’t becoming able to collect money from this market. On the other hand, they aren’t becoming
able to make large scale investment in this market.
15. Inadequacy of effective risk management system:
In a recent research paper, “Loan takeover in Bangladesh: Is it a healthy practice?” presented by
Mohammed Sohail Mustafa, associate professor of the Bangladesh Institute of Bank
Management (BIBM), at a roundtable organized by the Bangladesh Institute of Bank
Management, on November 23,2017), it has been revealed that “the borrower was sanctioned 1.5
times what it was eligible to get, which was sufficient to classify the loan.” (Source: The Daily
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Star, 24.01.17). Our respondents also notified that the risk management systems of the most of
the banks aren’t well-furnished.
16. Lack of confidence of general people on banks:
Because of several recent scandals in banking industry and very recent Farmer’s Bank failure to
pay the tk508 crore of environmental fund many government organizations are creating pressure
to withdraw their funds from private commercial banks. Thus, general people also losing their
confidence on banking industry and withdrawing their deposits from private commercial banks.
The crisis in banking industry is increasing day by day. Double digit interest rate on loan is a big
barrier of the expansion of the economy. If we don’t be able to expand our economy, in the long-
run our export income would decrease, unemployment problem would be further intensified, and
current GDP growth rate will be deteriorated. So, the Government, Bangladesh Bank, The
Ministry of Finance of Bangladesh should formulate short, medium, and long-term strategies for
coming out of this present crisis situation as well as ensuring a sustainable development in the
banking sector of Bangladesh.
