Giving in to pressure from government high-ups, Bangladesh Bank has set in motion the process of giving licences to four proposed commercial banks.
As part of the move, the central bank will place proposals at today's meeting of its board of directors.
If the four new banks get approval, the number of banks in the country will be 62.
The four proposed banks are: Community Bank Bangladesh, Bengal Bank, People's Bank and Citizen Bank.
Community Bank Bangladesh, proposed to be set up by Bangladesh Police Welfare Trust (BPWT), is a concern of Bangladesh Police, while the sponsors of the other three have strong links with the ruling Awami League.
Bengal Bank, initiated by Bengal Group of Industries, is a local manufacturer of plastic products. AL lawmaker Morshed Alam is the chairman of the Group, and his younger brother Jashim Uddin is the chairman of the proposed bank.
MA Kashem, an AL leader in the US, is the chairman of the proposed People's Bank, while Jahanara Huq, mother of Law Minister Anisul Huq, is the chairman of Citizen Bank.
Last year, the BB turned down the proposals for giving licences to new banks despite pressure from the finance ministry. Experts also opposed such move, saying the sector is already saturated and its overall health, especially that of the relatively new banks, has been declining.
But BB's resistance didn't last long as they faced mounting pressure from government high-ups, including Finance Minister AMA Muhith.
The latest one also came from Muhith on September 25.
“Probably, Bangladesh Bank recently decided to give licence to one of the proposed banks. I have requested you to give licences to all the proposed banks at one go,” Muhith wrote to the BB governor on that day.
In the letter, the minister told the governor that government high-ups recently decided to issue licences to the proposed banks at a meeting where the BB governor was also present.
Seeking anonymity, a BB official said the central bank's board sent a letter of intent (LoI) to Bangladesh Police Welfare Trust on August 28 for taking necessary measures to set up its bank company.
The board is likely to approve the proposals regarding Community Bank Bangladesh. It would also decide when the rest of the proposed banks would be given licences, the BB official told this newspaper yesterday.
“We are yet to complete our work such as verification of the documents submitted by sponsors of the proposed banks ... We are being forced to place the issue at [today's] board meeting,” added the official.
In September last year, the central bank turned down the finance minister's proposals for approving more banks on the grounds that the deteriorating financial health of many banks, especially the new nine, does not warrant any new addition to the sector.
In response to a letter from the finance minister that month, the regulator said defaulted loans in the banking sector kept an upward trend when the capital base of the sector eroded significantly.
The health of the nine new banks also deteriorated in recent times. Of those, Farmers Bank and NRB Commercial Bank are in a bad shape in the absence of corporate governance.
The BB provided licences to the nine banks in 2013. Many of the sponsors of the fourth generation banks have direct links either with the AL or its allies.
AB Mirza Azizul Islam, former finance adviser to a caretaker government, said approving more banks is totally unnecessary as the number of banks is already high, considering the country's business volume.
The fourth generation banks, which were given licences under political consideration, failed to perform properly, and two of those are in a bad condition, he said.
“The decision to approve more banks will make the situation worse for the banking sector.”
Khondkar Ibrahim Khaled, former deputy governor of the central bank, said the finance minister stated last week that the number of banks in the country was high, but interestingly he took “a reverse stance” in this case.
“I would like to ask Mr Muhith why he has requested the central bank to approve new banks when he himself said the number of banks in the country is comparatively higher than required,” he said.
However, Jashim Uddin, chairman of the proposed Bengal Bank, still sees opportunities for new banks.
“There are challenges in running a new bank. But the country's tremendous economic growth will help such bank explore business opportunities,” Jashim told this correspondent yesterday.
He claimed that none of the 22 sponsors, who provided funds for setting up Bengal Bank, has direct or indirect links with any political party.