Approval of three new banks amid an organised chaos
Bangladesh Bank on Sunday approved three new commercial banks, bringing the number of scheduled banks in the country to 62. The new banks are Bengal Commercial Bank, People's Bank and Citizen Bank. The paid-up capital for each of the approved banks has been set at Tk500 crore, up by Tk100 crore applicable to other commercial banks. However, the decision for approving new banks comes at a time when the banking sector is reeling from poor governance, bad and unrecovered loans and a series of banking irregularities.
Given the poorly performing banking sector, we don't believe, whether it was truly necessary for approving three new banks. And if the decision was purely political, the public is least likely to benefit from the new banks. Instead the government should have pondered over laws, to force mergers for the existing ones, rather than establishing new banks. The total number of banks is more than enough in line with the size of our economy.
The finance ministry is under the impression that market has room for more banks, but banking experts and former bankers opine that given today's economic realities, we do not need new banks, and having new banks defies economic sense. The previous finance minister had, in fact, gone on record last November to state that there were too many banks considering the size of the economy and was unhappy that licences were being granted to new banks.
From the central bank's end, BB has ample evidence of large-scale siphoning off of funds by some fourth-generation banks - it has gone ahead and approved a number of fifth-generation banks--knowing full well that given the lack of financial discipline in the banking sector--sanctions motivated by extraneous considerations will result in waste of more public money.
Needs be mentioned, the financial health of the nine banks that got licenses in 2013 is poor, with one fast nearing the verge of collapse. This shocking financial reality must be seriously taken into account while ensuring the efficient and accountable functioning of all public and private banks numbering to a staggering total of 118. On the flipside, if the three new banks can achieve success through efficient and transparent functioning they may well become role models for the rest. That will however, be a big challenge for the private owners as well as the government.
Last of all, reforming and restructuring the banking sector is undeniably a big challenge for the government, and it should resort to well thought effective strategies to address the subsiding sector.