Finance Minister AMA Muhith has defended the creation of new banks in the private sector, even though newly opened lenders are struggling to stay afloat and economists vehemently oppose the move.
The Bangladesh Bank is completing the preliminary licensing procedures for two other banks, on the recommendation of the Minister of Finance himself.
Muhith told reporters yesterday that the government was thinking about allowing three new banks into an already oversaturated landscape.
Asked about the rationale for the approval of the new banks as many of them struggle, Muhith said: "There are provisions for mergers and liquidation of banks, so that existing banks can do it. "
"Despite the licensing of so many banks, there is still a huge unbanked area, and we are not very advanced in this area in the banking sector," he said. The outcome of a meeting organized by the Bangladesh Insurance Association yesterday at the Dhaka club.
In September, the Bank of Bangladesh refused license applications for two new banks on the grounds that the financial health of many banks, especially the newer ones, was deteriorating and new banks were no longer operating. required.
But on November 15, the Ministry of Finance asked the BB to issue licenses to both banks.
One of the proposed banks is Bengal Bank, initiated by Bengal Group of Industries, a local manufacturer of plastic products. Morshed Alam, a legislator of the ruling party, is the group's president.
The other bank is People's Islami Bank, proposed by MA Kashem, a leader of the Awami League living in the United States.
When asked about the other bank that holds the license, Muhith gave no name, but sources from the Ministry of Finance said the bank was intended for the police.
In 2009, after the Awami League formed the government, nine banks were given permission for political considerations despite opposition from the central bank and other neighborhoods.
After four years of operation, the financial situation of two banks, including Farmers Bank, has deteriorated. Now the BB has taken the initiative to change the management of the bank.
The health of the banking sector has further deteriorated since 2013, said Ahsan H Mansur, executive director of the Policy Research Institute and former senior official of the International Monetary Fund. "The government should learn from the past, allowing a new bank will not do anything good for the financial sector."
He claimed that the BB had issued licenses to nine banks in 2013, given the political background of the owners and despite severe criticism from different neighborhoods.
"57 banks are too many for Bangladesh – the weakest banks should merge with the stronger ones," he added.
Mustafizur Rahman, a prominent colleague of the Center for Policy Dialogue, said the government and the BB should instead focus on reforms and establish discipline in the banking sector.