THE Bangladesh Bank (BB) has taken over the private commercial bank, Oriental Bank Limited, and appointed an administrator to look after its management. The bank in question, which is a shariah-based bank, was established in 1987. In the beginning, it was named Al Baraka Bank Bangladesh Ltd. During the last 19 years of its existence, the ownership of the bank has changed hands a number of times. Meanwhile, the problem bank had lost all confidence of the depositors. Since trust is the ultimate capital on which a financial institution thrives, the loss of this vital element, for all practical purposes, had sealed the fate of the bank under consideration.
Before the BB took its decision, the bank was incurring losses worth billions of taka. The value of its shares was plummeting. Eventually, the BB had to put its foot down to salvage the failing financial institution and take it over by removing its Chief Executive Officer (CEO) and dissolving its board of directors in exercise of the sections 46 and 47 of the Bank Companies Act. This is for the first time that the central bank has taken this kind of decision to take control of a dysfunctional financial institution in the private sector. However, prior to this, the central bank had to come to the aid of some other banks in the private sector including the United Commercial Bank (UCBL), the Social Investment Bank (SIBL) and the Al-Arafa Islami Bank. But in those cases, the central bank did finish its job by only appointing administrators to those problem banks. So, the wholesale decision of removing the CEO as well as dissolving the board of directors of a private bank and then taking its charge is quite a new experience for the BB. There were fewer options left before the BB than taking charge of the problem bank. Barring the decision of BB to bail out the crisis-ridden private bank, the ideal alternative could be its merger with other financial institutions of its kind in the private sector. However, before going for the second option, the central bank would have to make a lot of exercises.
A failing financial institution such as a bank does certainly tell upon the financial health of the economy. From this point of view, the decision taken by the central bank in the present case was unavoidable. The pre-takeover status of the sick bank in question was simply mind-boggling. The accumulated loss of the bank stood at Tk. 4.50 billion as of March 2006. The amount of total default loan of the bank was to the tune of Tk.4.37 billion, which is about 24.40 per cent of its total outstanding loan.
In fact, the central bank enlisted this bank as a 'problem bank' way back in 1994 and had been keeping it under close observation since. By the year 2002, the bank had already become a clinically dead one. Then why did it take such a long time for the central bank to go for the ultimate move of taking it over? What was holding it back? Was there any pressure from any vested quarters so much so that the BB had been dragging its feet thus far over the matter?
Reports have it that some twenty top defaulters are responsible for the collapse of the Oriental Bank, since they could always get away with their evil motive through loopholes of the law. This certainly does not speak well of the legal aspect of the discipline in the financial sector of the country. So, to avoid a repetition of similar takeover in the future, the authorities should concentrate more on revamping the financial laws to restore discipline in the banking sector.