Rules should be amended so that the central bank can remove the board members of state banks when they are found guilty of wrongdoings, Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said yesterday.
Without independence, central banks cannot function as an effective regulator, and the BB suffers in this aspect, he said.
He said the Banking Companies Act empowers the BB to remove directors or the entire board of a bank and appoint an administrator.
But at the same time, the existing law does not allow the central bank to remove directors and the board appointed by the government, Khaled said.
“This explains why the BB could not remove the chairman or directors of BASIC Bank, Sonali Bank or any other state banks.”
He was delivering a keynote on bank customers' risk management at the Annual Banking Conference 2015.
The Bangladesh Institute of Bank Management (BIBM) organised the two-day event on its campus in Mirpur, Dhaka.
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Khaled said the arbitrary clause of the Banking Companies Act creates discrimination and prevents the central bank from protecting the customers of state banks.
“The reason for unusual corruption and looting of customers' money in state-run banks is such legal anomaly.”
“Law needs immediate amendment to stop corruption and looting at government-owned banks as well as to place all scheduled banks under one legal provision,” he added.
Khaled, now a professor at the BIBM, said nearly 90 percent of the working capital of a bank comes from depositors, while the rest comes from the owners or shareholders as equity.
From this point of view, customers' risk far exceeds the risk of owners, who not only own the bank but also form the board and operate the bank, he said.
"They take care of their own interests. Who will take care of the interests of customers?”
He said customers cannot play any role in the management of banks. “That is where central banks come in. Central banks create balance between owners' and customers' interests.”
According to Khaled, appointment of independent directors is another device to protect customers' interests. "Independent directors are expected to keep vigil in the board.”
"The directors of the board normally select their own people. The system is yet to show notable examples in our country. However, gradual development of the system will yield fruitful results in course of time."
Khaled, also a former chairman of Bangladesh Krishi Bank, asked customers to keep close watch on their banks and lodge complaints with the central bank if necessary.
Proactive and vigilant customers can effectively contribute to safety of their own money and own bank, he said.
Khaled said the management of a bank is an important safety valve for the protection of customers' interests.
As the central bank protects the chief executives from illegitimate influence of owners, it becomes the CEOs' responsibility to protect all officials from undue influence of owners and others, he said.
"Thus a bank's professional cadre remains independent to safeguard the interests of customers as well as the institution."
On the last day of the two-day conference, a number of papers were presented by local and foreign bankers and academics.
A paper was presented on the role of technology and financial literacy in financial inclusion in Bangladesh.
According to the paper, the issue of technological innovation and its infrastructural development needs to be a priority for the countries in the region.
The paper was authored by Sandip Sarker, a management trainee of Premier Bank; Rezwan Mahmood, principal officer of Eastern Bank, and Enamul Haque, assistant professor of business administration at Khulna University.
It said financial literacy should be developed through financial education process where both the clients and the service providers will play a pivotal role.
Bharat Ram Dhungana, an assistant professor at the School of Business at Pokhara University in Nepal, presented a paper on “Microfinance and economic transformation: A case of Nepal”.
He said his study shows that there is a positive impact on micro-enterprises creation, income level, consumption expenditure and capital expenditure of the people after microfinance intervention.
One of the significant impacts of microfinance is that it increases the income level of clients, he said.
Prof Shibli Rubayat Ul Islam, dean of business studies at Dhaka University; Md Sadiqul Islam, a professor of finance at the university; Md Akhtaruzzaman, economic adviser of Bangladesh Bank; Al Mudabbir Bin Anam, senior adviser of German international cooperation agency GIZ in Bangladesh; and Toufic Ahmad Choudhury, director general of the BIBM, also spoke.
source: The daily star
