Bangladesh is a Third World Country With an Under

8/13/2019 Bangladesh is a Third World Country With an Under

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Bangladesh is a third world country with an under-developed bankingsystem, particularly in terms of the services and customer care provided

by the state-run banks. The private banks that emerged following the

1990 Financial Sector Reforms Programme (FSRP) are trying to imitatethe banking structure of more developed countries, but this attempt isoften foiled by inexpert or politically-motivated government policiesexecuted by the Bangladesh Bank. The outcome is a banking systemfostering corruption and illegal monetary activities, money launderingetc. by some politically-powerful people and criminals. At the same timeit is making the attainment of international standard in services or

performance difficult leaving the common people and students studyingabroad or resorting to distance learning etc at the receiving end.

There is no denying the fact that the banking or financial system plays asignificant role in the economic development of a country. In fact, it isthe system by which a country's most profitable and efficientdevelopment projects are systematically and continuously directed to themost productive sources of future growth in an economy. The financialsystem should not only transfer funds from savers to investors; it mustalso be able to select projects which will yield the highest returns,accumulate sufficient quantities of capital to fund the range ofinvestment projects across economic activities, account for price risksacross assets, monitor performance and enforce contracts. The larger thefinancial sector is in the context of the overall economy, the greater theshare of lending by a depository is, and the greater the credit flow to the

private sector is rather than the public sector and the greater thecountry's economic growth is.

The banking sector in Bangladesh made a remarkable progress in respectof automation of its functioning in last several years. For the pro-active


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and forward-looking approach of the Bangladesh Bank, a number ofautomation initiatives have been implemented in the banking sector.There has been a rapid progress in use of information technology (IT)

with the increased adoption of internet as a delivery channel contributingto a gradual reduction in overhead costs of banks in the areas ofmarketing, IT and staff by providing significantly high-quality servicesthrough ATM (Automated Teller Machine), POS (Point of Sale), Online,Internet, Tele-banking, SWIFT (Society for Worldwide InterbankFinancial Telecommunication) etc. These have significantly changed themarket structure of Bangladesh's banking system. Moreover, the bankingsystem has undergone unprecedented changes over the last twenty yearssince 1990. The country moved away from state control to a relativelymarket-based open economy by adopting a major stabilisation,liberalisation and deregulation programme under the influence of theWorld Bank and the IMF (International Monetary Fund) against the

backdrop of serious macroeconomic imbalances in early 1980s. Afterthe initiation of FSRP in 1990 the sector was exposed to a greatercompetition with the entry of new private banks and more liberal entryof foreign banks in line with the recommendations in this FSRP. Thesehave significantly changed the market structure of the banking system.Consequently in the recent years the state-owned banks have lost a bigshare of the market to the private commercial banks. These changes willhave major and vast implications for concentration and competition inthe banking and financial sectors in Bangladesh. However, suchincreased concentration can solidify the market strength of large banks

by fostering collusive behaviour among them and therefore hinder bothcompetition and efficiency and even give rise to the growth of corrupt

practices.

It is reported that the state-owned banks will get a bailout capital of Tk


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50 billion from the state coffer. It is clear that insufficiency of capital inthe state-owned banks is the results of large-scale debt defaults anddeceits by the borrowers. This money will surely come from the

taxpayers' revenue. Though such a bailout is necessary even today, thereis yet no measure or guarantee in sight which may address the reasonsthat cause the erosion of capital of state-owned banks necessitating suchrescue measures. Since the amounts of bad debts have been high enough,the state-owned banks' own capital has come under pressure resulting insuch a crisis.

If forgeries like those of Hall-Mark and Bismillah Group are notchecked, the state will have to go on bailing out state-owned banksrepeatedly year after year in future. If the looters are not brought to bookand if they are allowed to stay at large, such incidents will continueunabatedly. As a result, the disparity will increase and the depositors

being deprived of fair profit will lose interest in savings. If so happens,the investments will fall slowing down the pace of economic growth,development and employment generation, for the purpose of which the

banking system has been established.

Bangladesh's experiences are that the state-owned institutions like theRailway, Bangladesh Road Transport Corporation, Trading Corporationof Bangladesh, Bangladesh Inland Water Transport Corporation, publicsector medical services and educational institutions fail while theircounterparts in the private sector thrive. Many, perhaps not illogically,

smell a whiff of conspiracy that the private competitors in such sectorsmight have been behind the acts of sabotage to establish their monopolyat the expense of the public sector and the benefits the people could reapfrom the state-run institutions. Many of the members of the ruling classare involved with such private utility services. The industrial


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organisations in the public sector are perhaps no exception. So it is notsurprising to note that the state-owned banks will fail and make the wayfor the private ones to thrive. This neither does happen nor is desired in

mixed economies as in India, Britain, China or anywhere in the world.But surprisingly Bangladesh is an exception. Appropriate and effectivegovernment care is needed to found the state-owned banking industry ona sound footing and thus help it survive.

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Bangladesh is a Third World Country With an Under