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Does Bangladesh need more banks?

  • Published at 02:56 am November 1st, 2017
  • Last updated at 03:01 am November 1st, 2017
Does Bangladesh need more banks?
The government is planning to increase the number of banks in Bangladesh at a time when the nine most recently-launched institutions are already unsettling the market over their poor performances. Finance Minister AMA Muhith has personally written to Bangladesh Bank for the approval of two new institutions. Other government agencies and senior officials have also put forward their proposals for new banks to the central bank. “There is nothing to be worried about with launching new banks,” the finance minister said at a recent event. “Many people in the country are still unbanked. We have also taken steps to update the merger laws so that the banks which will not be able to compete in the market can be merged.” Although there are 57 active commercial banks in the country, the government believes more banks can help the economy. However, former Bangladesh Bank governor Dr Salehuddin Ahmed was among the economists and bankers to oppose the finance minister’s views in no uncertain terms. He told the Dhaka Tribune: “It is completely illogical to give licence to new banks. The existing banks are more than enough compared to the size of the Bangladeshi economy. The concerned authorities should rather focus on improving the existing banks’ performances.” Dr Salehuddin also said there is not enough expertise and manpower for conducting bank operations in the country. “The central bank faces a lot of difficulties in inspecting and monitoring so many banks already,” he said. According to sources, Bangladesh Bank is currently sitting on more than 80 bank licence applications. Although it is yet to approve any of them, investors in these proposed banks appear to be hopeful of receiving their licences within the tenure of the incumbent government. However, a 2017 survey conducted by BIBM revealed that 95% of bankers thought no new banks were required in the next few years. Some of them also said there were more than enough banks operating in the country, and it would be more prudent to reduce the number of banks. “Absolutely, there is no need to provide any licence to new banks. We should think of laws to force mergers for the existing ones, rather than establishing new banks,” said economist and former finance adviser to the caretaker government, AB Mirza Azizul Islam. Former deputy governor of Bangladesh Bank, Khondkar Ibrahim Khaled, added: “A few years ago some banks were given licences due to political considerations. These banks have already been transformed into grocery stores because of all the interference by their directors, as well as their friends and family members.”

New banks struggle

Bangladesh Bank conducted a study in 2011 to assess the need for new banks in the country. The study found that the number of banks was too many compared to the size of the Bangladesh economy. Despite this finding, the central bank has since approved nine new banks under pressure from the government. All of the investors of the new banks are affiliated to the ruling Awami League of Prime Minister Sheikh Hasina. The nine banks are: Meghna Bank, Midland Bank, Modhumoti Bank, NRB Bank, NRB Commercial Bank, NRB Global Bank, South Bangla Agriculture and Commerce Bank, The Farmers Bank and Union Bank. After that, the Bangladesh Bank last year approved a licence application by Shimanto Bank, owned by the paramilitary force Border Guard Bangladesh. “There was no need for opening the last nine banks,” said Md Yasin Ali, a supernumerary professor at the Bangladesh Institute of Bank Management (BIBM). “Those are still struggling and cannot stand up at all (so) there is no logic behind opening new banks. Rather, new bank branches can be opened in unbanked areas if needed.” A recent BIBM study to evaluate the performance of the new commercial banks showed the nine banks are in aggressive expansion mode, putting their depositors’ money at risk. Their non-performing loans rose considerably over the last two years due to irregularities, according to the study. Furthermore, the Parliamentary Standing Committee on Ministry of Finance has recently told Bangladesh Bank that The Farmers Bank Ltd is a “risk” for the financial sector. The four-year-old bank already has a notorious reputation for borrowing from depositors and other banks at high rates, without having the capability to repay them. Who wants to open new banks? The central bank has received a licence application for a bank named Bangla Bank from Bengal Group, whose chairman is ruling party MP Morshed Alam. In addition, a businessman from Sandwip in Chittagong named MA Kashem has applied to open a bank named People’s Islami Bank. Sources said Muhith has written separate letters to Prime Minister Sheikh Hasina and the Bangladesh Bank governor recommending the approval of the two banks. Talking to the Dhaka Tribune, Bengal Group Vice Chairman Md Jasim Uddin said: “We applied for the licence for a new bank but have not received any response yet. We have heard that a joint project called ‘Korea-Bangla Bank’ co-owned by domestic and foreign owners, have also applied for licence.”

Banks for professionals

In recent years, several banks that are dedicated to people in specific professions have been launched. Apart from the army’s Trust Bank Ltd, none of the others have made a strong position in the market. Despite this, the prime minister has announced that the government will soon give approval to a bank for Bangladesh Police officials. According to a list of applications for bank licences submitted to the central bank, Bangladesh Air Force and Bangladesh Navy want their own separate banks, too. In addition, government employees also look to benefit from “Samriddhi Sopan Bank” dedicated to their welfare. AB Mirza Azizul Islam said it is “totally pointless” to give permission to open banks dedicated to people from certain professions. “If the practice continues, we would hear that all 19 cadres of Bangladesh Civil Service are demanding separate banks. This practice should stop right now,” he said. Md Yasin Ali voiced also spoke out against the dedicated banks. “Considering the size of economy of Bangladesh as well as the numbers of banks in the country, there is no need to give permission for banks for different professions,” he said. “Three banks were launched targeting non-resident Bangladeshis with the assumption that they would bring in foreign investment, but they have failed to do so. The Probashi Kallyan Bank and the Karmasangsthan Bank have also failed.” Instead of opening these specialised banks, Yasin Ali said the authorities should hand the commercial banks over to the private sector, keep the banks’ operations safe from interferences, and ensure strong supervision by regulatory authorities.