Identifying capital flight as a major factor behind weak financial sector, Bangladesh Bank Governor Ahsan H Mansur has called for addressing political and social issues behind it to help the country move forward.
“Money laundering must be stopped. We won’t be able to come out of our main problem if we can’t address its political and social causes,” he said while addressing a dialogue at the Bangladesh Institute of Bank Management (BIBM) in the capital on Wednesday.
He said if one feels insecure about his life and property and his children’s jobs and futures, capital flight can’t be stopped by any means.
The governor believes that capital flight is the key to declining the size of the financial sector compared to the country’s GDP as deposits are declining.
“Where have the deposits gone? We’ve to find out the reason in how forex reserves have fallen from $48 billion to $24 billion. Most probably the money has been laundered,” Mansur pointed out.
He mentioned that the ratio for broad money and GDP has now dropped to 52 percent from 64 percent in FY2016-17, whereas the ratio is 95-96 percent in India and 212 in China. For an ideal economy, it should be over 100 percent.
Besides some success in the banking sector, Bangladesh has failed to develop a bond market for long-term financing and the other two pillars of the financial sector – capital markets and the insurance business, he explained.
Citing “a chain of failure” for the banking sector problems, he said the central bank has shifted its focus on ensuring compliance and supervision to streamline it.
The governor added that two new laws will be enacted soon to kickstart banks’ asset quality assessment and appoint asset management companies to rescue non-performing loans.
Ahsan H Mansur is hopeful of bringing the mounting inflation rate down to 7 percent by next June and to 5 percent by next fiscal year, supported by a stable exchange rate, tightened monetary policy, and an improving balance of payment situation.
In the current context, a 4.5 percent GDP growth will be good enough for the economy, which he said is going through a consolidation process now.
Taking part in the open discussion at the dialogue, Selim RF Hussain, Association of Bankers Bangladesh Limited (ABB) chairman, alleged that the central bank suffered “a total breakdown” during the last 15 years, destroying the banking sector.
During that time, bankers had to struggle to deal with requests from the central bank officials for providing jobs, promotions, and many types of influences.
Bankers’ also raised questions with regard to “dummy” chairmen and directors, the faulty managing director appointment process of the central bank, and the integrity of external auditors and officials of the commercial banks.
“Even after so many years of independence, we’ve not been able to set a moral compass in the banking industry,” said Abdul Mannan, a seasoned banker and chairman of Fast Security Islami Bank.
According to him, the sector was excellent until FY2006-07 but started sliding after 2010. Some controversial banking laws have driven some good bankers out of the sector, leaving it in a messy situation, he noted.
He emphasised that the deposits collected from rural areas should be invested there; not in urban areas.
The bankers also suggested appointing chairman from among people who are not bank sponsors, and at least 50 percent of directors should be independent.
