The Importance of Financial Discipline in Bangladesh

A healthy financial sector is crucial for economic growth, especially for economies like Bangladesh because economic growth in Bangladesh must come largely export and its enterprises must, therefore, be internationally competitive. But unfortunately, due to lack of discipline Bangladesh has a financial system in which borrowers fail to repay their loan, foreclosure is almost unheard of and the govt has to bail out banks. The nationalized bank passes on their losses to the govt and receives periodic capital transfusion to keep themselves going on. Thus commercial banks are at the heart of the problem in Bangladesh's financial sector.

A major problem in the financial sector:
The major problems in the financial sector of Bangladesh are lack of discipline. Furthermore, the crucial problem of our financial sector may be defined as under:
Unsound private bank:
Small domestic private banks are hardly better off. They offer no serious competition to the nationalized banks.
Inadequate suppression and enforcement:
Inadequate prudential regulation and weak suppression are a recipe for banking problems. Poor enforcement capacity robs weak suppression of what little effect it might have.
Deficient legal framework for loan recovery:
Poor prudential and regulation are suppression is made worse by an inadequate legal framework. The banks can absorb some low levels of nonperforming loans if there is a strong legal framework for loan recovery foreclosure and liquidation. Bangladesh lacks such a framework.
Shallow capital markets:
The discipline of the bank is only a problem in the financial sector of Bangladesh. Capital markets are small and don’t offer a competitive alternative to bank borrowing. Stock market capitalization retailed to GDP is 25 to 75 times smaller than in neighboring South Asian countries.
Measures for a cure
Curing the financial sector will not be easy enough, financially, or politically. It needs a comprehensive program both short term and long term for making the financial sector viable and competitive. For this following measures can be considered-

1.Tightening loan recovery and its legal framework:
The govt needs to undertake comprehensive measures for loan recovery. So govt should take the following steps
a)Amend the financial loan court act to strengthen the loan courts, giving them the powers to execute their decrees and staffing them adequately.
b)Increases the number of loan courts, especially in Dhaka, Chittagong, and Khulna to clear the backlog of cases.
c)Strictly enforce all laws against white collar crimes.

2.Strengthening the Bangladesh bank:
Tighter regulation should be pleased to avoid shocks to the health of the banking system. For this the and Bangladesh bank should:
a)Tighten regulations on bank capital and provisioning and ownership.
b)Define and penalties for insider lending
c)Ensure that Bangladesh bank autonomy legal status and organizational structure.

3.Restricting private bank:
To deal with trouble private banks, Bangladesh Bank should develop criteria for selecting banks for restricting.

4.Privatizing nationalized commercial banks:
Privatizing nationalized commercial banks is required to cure the financial system. However in privatizing the banks the govt should:
a)Appoint a financial advisor with a comprehensive term of reference for selling the first bank.
Develop a strategy for dealing with delinquent debt of state enterprise in co-ordination with the privatization program for state enterprise.

5.Strengthening accounting and auditing practice:
The govt needs to require auditing practice to the doubtful sector.

6.Implementing new information technology:
Bangladesh bank’s regulatory function would be easier to manage with computerization and real-time data communication links with the commercial banks it regulates.

7.Developing staff skills:
Professionalizing the banking because will generate large long term payoffs in the form of a more efficient banking system.

8.Depending on the capital market:
The govt should take steps to increase the ability of capital markets to efficiently provide long term funds through debt and equity financing. Thus the reforms include:
a. strengthening prudential regulation in the stock market and gradually removing over-restrictive and ineffective regulation on share issuers and market makers.
b. strengthening the securities and exchange commission.

9.Restricting state-owned development financing institution:
Strategy for deepening the financial system must give special attention to development financial institution, the traditional but now ineffective source of term finance to help industry respond to the growing economic liberalization.

10.Strengthening contractual saving institution:
The govt should examine ways of Strengthening nondepository contractual savings institution take necessary step which is really needs able.
The above discussion has shows the financial sector of Bangladesh is not functioning well and it needs a lot of reforms and reappraisals. For this govt should come with crash program which must be implemented promptly with courage and passion. Otherwise, all the program and efforts will go astray.

This article is written by Md. Azizul Islam Shahin

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