The board of directors of the central bank has opposed a government plan to allow more banks and financial institutions to come on the scene, saying the country does not require any new player in its financial regime.
During an exclusive meeting with Finance Minister AMA Muhith on Sunday, the Bangladesh Bank board led by Governor Atiur Rahman expressed their opposition about the plan, said a finance ministry official.
Before giving permission to open new banks, the government should conduct a study whether the move is viable, the BB said.
The meeting also discussed the country’s current economic climate, especially the risks in dealing with the macroeconomic factors in the current fiscal year in line with the new monetary policy of the central bank.
The BB board members include a number of noted economists such as Sanat Kumar Saha, a professor of economics at Chittagong University, Sadiq Ahmed, a former World Bank high official, Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies, and a number of government secretaries.
Almost all board members said there is no logic in allowing opening of any new bank in the country, a board member told The Daily Star, requesting not to be named.
They also said the number of banks in Bangladesh is too high compared to many other countries. If new banks are allowed to open, a new type of ill-competition would emerge.
Even if new banks get permission, it would be given on political consideration. Besides, the BB will not be able to allow approval to set up new banks ignoring political influence, and scrutinising the applications will not be flawless, the board members said.
During the meeting, Muhith asked the BB to prepare a report on the country’s overall banking situation and send it to the finance ministry.
Finance ministry officials said the central bank will include in the report a detailed study on the banking sector and also the observations of the BB board.
The latest development came following Muhith’s statement during the parliamentary budget session that the government would allow opening of new banks and would seek applications soon.
Early this month, the finance ministry sent to the central bank the part of the finance minister’s speech in parliament on the subject. The ministry, however, did not give any specific directive to the regulator about seeking application.
The number of banks in Bangladesh stands at 47 now. Besides, there are more than 100 financial institutions, said a finance ministry official.
Permission to set up any commercial bank or financial institution has not been granted since 2001. But the government is now under pressure from political front to allow opening of about five new banks.
The finance minister neither admitted nor refused the political pressure. “Indirectly [people] might talk about the pressure, but the number of entrepreneurs has increased substantially. So the government is thinking of allowing new banks to give them a chance,” Muhith told The Daily Star on Thursday.
“The banks that cannot survive in the competition should go for merger,” he said.
The central bank on July 26 will declare its half yearly monetary policy and the meeting also discussed how the next monetary policy would be.
The BB board members said two risks would figure high in the next monetary policy — containing inflation and minimising the pressure on balance of payments.
The board also said easing the pressure on the balance of payments would also be the main challenge for the government in the current fiscal year.
The board members said the central bank should not interfere in the foreign exchange market.
The amount of unnecessary imports will go down if the greenback is made costlier, they said.
The board also said money flowing to Bangladesh in the form of foreign aid should be disbursed quickly to trim down pressure on the external balance sheet.
It also gave opinion in favour of cutting the credit flow to unproductive sectors and government borrowing from banking sector in an effort to reduce inflation.
This was the first meeting with the finance minister after the board was formed, said the central bank governor.
-With The Daily Star input
