Originally posted in The Business Standard on 21 January 2024
While last year I might have called the banking sector ‘dysfunctional,’ I now describe it as being in a ‘very dismal state.’ The deterioration is ongoing, and unfortunately, the issue has become politicised.
Many of us are hoping for positive change after elections. Unfortunately, I see very little opportunity for that. Powerful interest groups and individuals are hindering progress.
Without breaking the cycle of power play, we cannot realistically expect any new government, regardless of its constitutional mandate, to solve our problems immediately.
Another critical issue is the independence of the regulating body, particularly the central bank, which bears the primary responsibility for overseeing the financial sector’s sound conduct. The Sri Lankan governor’s recent remarks highlighted the importance of genuine, not merely paper-based, central bank independence. Ultimately, the regulator’s independence hinges on the individual’s mindset and their ability to uphold professional and technical autonomy.
That is why the Sri Lankan central bank governor received an A grade, we here in Bangladesh received a D grade [in the Global Finance ranking].
Just a year ago, Bangladesh and Sri Lanka were in similar positions. Yet, while Sri Lanka has shown signs of recovery, we have fallen further behind.
There are three primary reasons for Bangladesh’s lagging performance: A weakening political commitment, the central bank’s failure to implement corrective measures, and the detrimental influence of the political economy.
Recent amendments to the Banking Company Act favouring sponsor directors have eroded corporate governance within the private sector.