Basic Bank on collapse

Bangladesh Bank action an eyewash: Its credibility questioned

21 March 2014 Kazi Zahidul Hasan

As irregularities galore in Basic Bank, some senior bankers and financial analysts on Thursday suggested the central bank for taking immediate steps to remove the present board of directors in exercise of the Banking Company Act.   
Terming the central bank's recent move of slapping fine and posting an observer in the bank as 'eyewash,' they urged authorities to bring rapid overhaul in the bank's internal governance to prevent it from further vulnerability.
They also raised question about the credibility of the central bank as the country's banking sector regulator as it is yet to come up with any actions against the banks' board members despite big financial scams   in the recent years under their nose.
Meanwhile, the Anti-Corruption Commission (ACC) is running probe into Basic Bank's credit irregularities. But experts raised the question about the effectiveness of the ACC and the central bank because Basic Bank is collapsing as they look on.  
Bangladesh Bank (BB) last week slapped fine of Tk 10 crore for breach of trust further deepening the bank's image crisis. It also posted an observer last year to Basic Bank to oversee the activities of the bank in the wake of its declining financial indicators. But no noticeable improvement is in sight.   
"The bank is on the verge of collapse now and without placing a new board it is hard to recover the bank from ongoing crisis," a former BB governor told The New Nation yesterday on condition of anonymity.  He also expressed skeptical view about the central bank's move to rescue Basic Bank from its present financial irregularities by only slapping stiff fine or placing an observer to oversee the activities of the bank.
"There are problems in its governance and management systems. So, BB should knock out the root cause," he said, adding, "only a drastic overhaul in the bank's management can ensure stability in the bank."   The former governor, however, held responsible the incumbent board of directors for the ongoing crisis of the bank. "The present board is responsible for the present financial condition of the bank as it has sanctioned big amount of loans to a vested quarter violating the banking norms," he added.  
Referring to a BB report, he said, the vested group under the cover of 16 fake companies was able to misappropriate Tk 3,500 crore from the bank's two city branches between 2009 and August 2012 with approvals from the board.
The central bank must take drastic action against the board members and the officials of the bank in the light of the Bank Company Act which provided much power to it. "Without punitive action and removal of the errant board members, the whole task of BB to revitalize the bank may not bear fruits," he noted.
"The moves of BB will not yield positive result on the financial health until the government infuses dynamism in its management system," said former finance adviser to the caretaker government Mirza AB Azizul Islam in his reaction to the BB's latest move.
He added: The BB move is not enough to recover the financial health of the bank. The urgent need is to identify the wrong doers and punish them.
When asked, he said, slapping fine may stop the bank to do the similar wrongdoings for a certain period of time. But, in the long run, it may not help restoring discipline in the bank. Placing a new board in the bank could help the bank to recover from the present state of its financial condition.

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