Why banks must act as catalysts for inclusive growth

"Our last CEO made Tk200 crores in profit last year. How high can you take it to?" That was the question I faced in 2001 while being interviewed for a CEO position at a second-generation private commercial bank. 

The board members repeated it over and over, as if success could only be measured by how much more profit one could squeeze out. That moment revealed a mindset that still continues. 

For years, our banks have delivered double-digit growth, survived fierce competition, and rewarded shareholders. Yet the obsession with profit has come at the expense of trust. People now ask if banks are serving the country's growth or simply enriching their owners or making them powerful.

The distrust is not misplaced. Scandals have left deep scars. Time and again, directors have used banks for political gain or personal benefit. Deals are made in the shadows while disclosures are treated as box-ticking exercises. Prominent banks have faced public disgrace, with directors resigning or shown the door to avoid controversy. Such stories have tarnished the sector's reputation both at home and abroad. Foreign investors hesitate to bring funds, and local entrepreneurs with great ideas struggle to access fair financing.

Competition, which should have lifted standards, has often dragged them down. Banks compete not only with each other but also with non-bank financial institutions and microfinance outfits. Regulators have failed to harmonise these players, and customers exploit the gaps. Bank executives, at times pressured to hit impossible targets, bend rules just to survive. One shortcut led to another, and malpractice soon became routine. Instead of driving innovation, this toxic competition breeds mistrust and instability.

Capital markets add another layer of risk. Big banks have rushed to the equity market for funds, exposing themselves to volatility. Their contribution to market stability has collapsed, and many chase quick wins through proprietary trading or safer investment in government bonds rather than focusing on their core role. 

Meanwhile, the industry still lacks the skilled human resources needed to design and launch innovative products. Too often, banks recycle old ideas instead of investing in people who can build solutions for our own market. Most banks are dictated by the board even in day to day decision making, not the professional management running it.

Regulation should provide stability, yet it too often adds confusion. And it continues through the cracks or ambiguity. New requirements are introduced in haste without enough consultation or preparation. BASEL II, Automated Clearing House and payment gateway are already here, and talk of full-fledged implementation of BASEL III is growing louder. 

The problem is not the regulations themselves but how they are rolled out. The audited balance sheet doesn't reveal enough. Banks struggle to comply, loopholes are exploited even by some in watch-dog agencies and those who play by the rules end up disadvantaged. Enforcement remains weak. The regulations exist on paper, but without consistent and honest implementation, they achieve little. Large borrowers make best use of the weak or inadequately structured regulations. Depositors' interest is not served on many occasions.

The tragedy is that it did not have to be this way. Our banking sector could have been a national strength, a trusted bridge between entrepreneurs and opportunity, and a reliable engine of growth. Instead, too often it has served only the narrow interests of a few cronies, making best use of the episodic developments, eroding confidence and holding the economy back.

What is needed now is not another quick fix but also a shift in mindset. Banks must embrace governance and innovation. They must invest in people who can design products that meet the present and future needs of entrepreneurs and at the same time educate the market. Regulators must not only set the rules but enforce them fairly, creating a level playing field. 

Above all, society must stop tolerating malpractice as 'business as usual' and allow banks to hide under glossy advertisements or loud sponsorship. Their success should reflect it all.

I once heard someone ask the editor of a leading national daily why his paper ran so many negative headlines. The editor replied, "Stop creating negative stories, and we will stop publishing negative headlines." The same lesson applies here. If banks want better headlines, they must change the story. Look around and make best use of innovation and technology. Banking is not all about loans or stressed assets, it is more important as a financial intermediary to ensure inclusive growth.

Mamun Rashid is an economic analyst and Chairman at Financial Excellence Ltd.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of The Business Standard.