Amidst the ongoing instability and recent changes in government, the already troubled banking sector in Bangladesh is encountering fresh turmoil.

Protests demanding changes in bank ownership and related reforms have escalated into violent confrontations, leaving depositors deeply anxious about their financial security.

Many savers are withdrawing their money from banks due to concerns about the future. The situation is further complicated by cash shortages at ATMs and a restriction limiting withdrawals to Tk2 lakh, increasing uncertainty for customers.

While financial experts assure that the crisis will be resolved soon, there are concerns that it could worsen if not addressed promptly.

Protests across banks over ownership

Protests have erupted in different banks since the fall of the Sheikh Hasina-led Awami League government, with demands for changes in ownership and addressing grievances of those who feel marginalised.

Last Sunday, a clash at Islami Bank Bangladesh headquarters resulted in six people being shot. Following this, bank officers called for the reconstitution of the board to remove those they view as "looters."

On Monday, long-time bank employees of the bank protested in front of the headquarters, and those appointed post-2017 were unable to enter the premises. The protests also addressed the recent shooting incident. 

Besides, armed people staged a show of force in front of the Social Islami Bank headquarters, creating fear among employees and customers. Protests were also held at IFIC Bank, with calls for the resignation of its chairman Salman F Rahman, his son, and all directors associated with Beximco.

Similar demonstrations occurred at United Commercial Bank (UCB) and other private and state-owned banks.

Opinions of experts

Masrur Riaz, chairman of Policy Exchange, said that protests in banks are a sign of deeper issues, with some groups within banks marginalising others and creating irregularities. 

He suggested that protests should be managed systematically and discussed in a proper forum. Riaz also criticised the blanket withdrawal limit, recommending a gradual increase.

Dr Ahsan H. Mansur, Executive Director of Policy Research Institute (PRI), stressed the need for immediate intervention due to the unrest and protests over bank ownership.

Cash outside banks reaches Tk2,61,195 crores

Instability in the banking sector has led to an increase in cash held by the public. The latest Bangladesh Bank report indicates that cash outside the banking sector reached  Tk2,61,195 crores by the end of March 2024, up from Tk2,57,574 crores a month earlier.

Mumu Islam, a customer of Sonali Bank's local office, said that she had kept her pension money in the bank, relying on the profit every three months. However, with the rising cost of living, she said it was no longer possible to manage, prompting her to withdraw her entire savings.

Banking sector insiders report a growing amount of cash outside banks and a negative trend in deposit growth. The total deposits in the banking sector stood at Tk17,608 crore at the end of May 2024, showing a mere 1.1% growth.

Mohammad Nurul Amin, former chairman of the Association of Bankers Bangladesh (ABB), an organisation of private bank executives, said that depositors should not be alarmed unless banks engage in practices that damage their financial health, such as high levels of non-performing loans.

He also urged for prompt resolution of the banking crisis and restructuring of management and boards where necessary. 

Criticising the Bangladesh Bank for favouring certain individuals and groups, Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), said the central bank's actions have led to 24 major banking scandals in the past decade, amounting to Tk 92,261 crore. 

Depositors are increasingly anxious, while those responsible for the sector's decline remain unaccountable, she added.

Traders face cash shortage

Traders are grappling with a cash crunch due to withdrawal limits imposed by the central bank. Banks were instructed to limit daily withdrawals to Tk2 lakh, down from Tk1 lakh previously. Traders fear that if the cash shortage persists, it will exacerbate their challenges.

Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said the central bank's Tk2 lakh daily withdrawal limit has posed significant challenges.

While some companies have managed to pay July salaries after receiving special permission to withdraw more, the issue remains unresolved, he said.

Rizwan Rahman, former president of Dhaka Chamber of Commerce and Industry (DCCI), said the country is still facing challenges due to the central bank’s cash withdrawal restrictions. 

Mentioning difficulties in paying salaries, he urged patience with the new government for recovery efforts. Rahman also expressed hope that the new administration will facilitate smooth business operations and prevent disruptions in foreign trade.

Assurance from Finance and Planning Adviser

Adviser to the Ministries of Finance and Planning, Dr Salehuddin Ahmed, said the imposed limit on cash withdrawals and the closure of ATM booths are due to security issues rather than a lack of funds. 

“Transporting large sums of cash from Bangladesh Bank has become dangerous following recent attacks on ATMs. The Finance Secretary will address the situation promptly,” he said.

Salehuddin Ahmed also assured that those involved in the conflict and shooting over control of Islami Bank would be brought to justice soon.

Source: Daily Kaler Kantho

BDST: 1436 HRS, AUGUST 13, 2024
MSK