From the Editor-in-Chief: Banking without checks-and-balances 

Enayetullah Khan
Thursday, March 5th, 2015
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Given the appalling nature of some of the infringements that have come to light in the country’s financial sector recently,the stern warning served this past week by Bangladesh Bank to banks and NBFIs (non-bank financial institutions) comes not a moment too soon, and should be applauded. The sensitive nature of most transactions carried out by banks means most of our financial institutions were forced to pull up their socks fairly early on in their journey, compared to other sectors. Yet it cannot be denied that in relation to their absolutely vital role in any modern economy, our banks leave much to be desired in the ways they have been used to operating for far too long now. Sooner or later, the central bank needed to up the ante in order to ensure strict compliance with banking rules and regulations.

 

In a meeting with industry heads held at the Bangladesh Bank headquarters on March 3, Governor Atiur Rahman is said to have categorically stated that from now onwards, there would be “zero tolerance” towards any violation of the rules and regulations that govern them by any financial institution. It was made clear to the CEOs in attendance that the buck stops with them to make sure there is no more repetition of the kind of gross misconduct that was uncovered by the BB’s dedicated vigilance unit at Basic Bank, to state just one example. The governor also disclosed that the vigilance unit continues to find some banks and NBFI concealing information from the central authority, presumably with the motive of carrying out “irregular activities”. Dr Rahman told his audience that the guilty parties can expect to face the consequences once some of these ongoing investigations are completed.

 

Through the work of its Financial Intelligence Unit, the central bank’s vigour and commitment to rooting out wrongdoing from the sector should be commended. When news of the string of scandals first broke, it was noted that the banking sector was suffering from a ‘discipline deficit’. What the FIU went on to find was more like a minefield of criminal activity, particularly in the state-owned commercial banks. Shortage of manpower restricts their capabilities in the private sector. Any shortfall should be addressed as soon as possible, because this is one government department that has established a track record worth building on, in a field whose importance cannot be overstated. The public’s confidence in the financial sector has taken a right old beating in the aftermath of the scandals. Restoring it to previous levels, or forging a new paradigm where the financial sector forms the bedrock of a vibrant, investment-friendly economy, will require the fight to be carried through to the finish. With the statements this week, we are pleased to note our central bank’s appetite for the battle.

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