United News of Bangladesh

One of the country's most renowned economists, Wahiduddin Mahmud,  who was also an adviser to the interim government,  has said that Bangladesh's banking sector was initially crippled by a culture of default loans, which later evolved into a destructive "bank looting culture" following 2010, ultimately plunging the financial sector into its current crisis. He made the remarks on Wednesday while speaking as the chief guest at the inaugural session of the two-day annual banking conference organized by the Bangladesh Institute of Bank Management (BIBM) at its Mirpur campus in the capital. Reflecting on his past experiences with banking sector reforms, Mahmud noted that restoring discipline previously required stringent regulations and hard work, which successfully elevated several private banks to international standards. However, the subsequent era of "bank looting" bypassed all rules and regulations, allowing individuals to siphon money straight out of banks unchecked. Urging stakeholders to learn from past mistakes, Mahmud pointed out that inadequate regulatory frameworks during the initial authorization of private banks in the past allowed entrepreneur-directors to siphon off nearly one-third (equivalent to 35 percent) of total deposits as loans. He further emphasized the need for "antitrust" or anti-monopoly legislation to regulate whether a single group or family should be permitted to control multiple banks, noting that Bangladesh still lacks such a legal framework. Criticizing political patronage, Mahmud observed that politically influential figures have consistently used state-owned banks to distribute undue favors. He stated that if political administrations wish to dispense political favors, they should choose sectors that do not inflict major damage on the national economy, stressing that utilizing the financial sector for political patronage is entirely inappropriate and a reality political leaders must recognize, as central bankers alone cannot stop it. Attributing the collapse of several banks to the indiscriminate approval of new banks without proper scrutiny after 2010, Mahmud highlighted the plight of vulnerable depositors. He noted that bankrupt banks had accepted deposits from government entities—including teachers' salaries, welfare, and pension funds—resulting in millions of takas belonging to impoverished MPO-registered teachers remaining trapped. Describing the extreme relaxation of banking regulations over the past 15 years as a primary driver of the current distress, Mahmud cautioned that while regulations may temporarily need to be eased to rescue weak banks, there is currently no guarantee against repeating past mistakes. Outlining a path forward, Mahmud stressed that banks must be given the opportunity to stand on their own feet while maintaining adequate safeguards. He called for thorough vetting to ensure that funds reach honest, genuine entrepreneurs and business operators, warning that failure to secure this mechanism will cause the sector to regress into past pitfalls. The event was also addressed by Bangladesh Bank Deputy Governor Md. Kabir Ahmed, Bangladesh Association of Banks (BAB) Chairman and Dhaka Bank Chairman Abdul Hai Sarker, World Bank Country Director for Bangladesh and Bhutan Abdoulaye Seck, and Association of Bankers, Bangladesh (ABB) Chairman and City Bank Managing Director and CEO Mashrur Arefin. The keynote paper was presented by Policy Research Institute (PRI) Chairman Dr. Zaidi Sattar.