Requests for new banking licences must be turned down bravely: Salehuddin
The former adviser highlighted the importance of financial inclusion and the role of technology-based solutions for those aiming to contribute to the economy
Former finance adviser to the interim government, Salehuddin Ahmed, today (11 April) said authorities must be prepared to bravely reject requests for new banking licences to protect the stability of the financial sector.
Speaking at the "Risk Conference on Banking and Finance 2026," organised by dFin and Dnet in Dhaka's Gulshan, Salehuddin shared his experience as a former central bank governor, noting that he frequently received proposals for new bank licences but managed them with technical caution.
He stressed that the current state of the industry, where depositors are struggling to withdraw their funds from distressed banks, underscores the necessity of saying "no" to such requests.
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The former adviser highlighted the importance of financial inclusion and the role of technology-based solutions for those aiming to contribute to the economy.
He warned against the risks of seeking high interest rates in weak banks, noting that many such institutions have now been merged.
"Compliance is very important in the banking sector, and it has to be strictly followed in the financial sector," he said, adding that if the economy weakens, it negatively impacts all financial segments.
He also addressed the insurance sector, which he noted is often perceived as fraudulent despite its critical importance to the overall financial ecosystem.
To mitigate financial risks, Salehuddin urged bankers to assess the financial literacy of customers before granting loans.
He added that the proper implementation of robust risk management policies is essential for the sustainable health of the industry.
Opposition to board reforms
Mashrur Arefin, chairman of the Association of Bankers Bangladesh and managing director and chief executive officer of City Bank, expressed opposition to a proposal to require 50% independent directors on bank boards.
He argued that having seven independent directors on a 15-member board would create conflict between two groups, leaving the managing director caught in the middle.
"I do not believe that people with the same educational qualifications become angels as independent directors while sponsor directors are all devils," he said.
Mashrur suggested following the model of foreign banks, where only three highly qualified independent directors typically oversee growth, governance, and credit risk.
He further noted that current experiences with independent directors are often poor, as they frequently focus on personal benefits or lobbying for recruitment rather than oversight.
Hidden defaults and credit risks
Mashrur revealed a stark reality regarding the country's financial health, stating that while the official default loan rate was previously cited at 9%, the actual figure is now known to be 40%.
He described the revelation of this truth as a "50% victory," noting that credit risk remains the primary cause of bank failures and boardroom malpractice.
Mashrur highlighted how boards often pressure managing directors to approve loans – including anonymous loans – without adequate collateral. "Sometimes boards pressure the MD to release funds without considering why the money is being given," he said, adding that such interference extends even to the procurement of bank supplies.
Impact of policy on human resources
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, raised concerns over a recent circular regarding incentive bonuses.
He noted that the inability to provide bonuses unless capital and provision requirements are met has led to brain drain, with one bank reportedly losing 30% of its staff to competitors. "It is not possible to retain efficient workers this way."
Calls for structural change
Shah Md Ahsan Habib, chairman of Dnet, highlighted that recent developments in the banking sector reflect financial crimes that contribute to operational risk, calling for stronger oversight by the central bank.
Sarwar Uddin Ahmed, dean of the Business School of ULAB and treasurer of Dnet, said credit risk is directly linked to non-performing loans and noted that the banking sector dominates about 88% of the country's economy. He also warned that loan rescheduling policies are creating additional structural risks.
Professor Md Nehal Ahmed of the Bangladesh Institute of Bank Management said depositors, not sponsor directors, are the true stakeholders of banks and emphasised the need for board members to receive proper risk management training.
Ananya Raihan, executive director, iSocial and executive committee chairman of Dnet, criticised the expansion of state-owned banks and called for digital banking licences to be granted based on capacity rather than political considerations.
Rizwan Dawood Shams, managing director of IPDC, stressed the importance of appointing competent independent directors and ensuring rigorous scrutiny of loan approvals to prevent risk accumulation.
