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The Importance of Financial Discipline in

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A healthy nancial sector is crucial for economic growth, especially for economies like Bangladesh
because economic growth in Bangladesh must come largely export and its enterprises must,
therefore be internationally competitive. But unfortunately due to lack of discipline Bangladesh
has a nancial system in which borrowers fail to repay their loan, foreclosure is almost unheard of
and the govt has to bail out banks. The nationalized bank pass on their losses to the govt and
receive periodic capital transfusion to keep themselves going on. Thus commercial banks are at




the heart of the problem in Bangladesh nancial sector.

Major problem in nancial sector:
The major problems in nancial sector of Bangladesh are lack of discipline. Furthermore the
crucial problem of our nancial sector may be de ned as under:
--Unsound private bank:
small domestic private bank are hardly better off. They offer no serious competition to
nationalized bank.
--Inadequate suppression and enforcement:
inadequate prudential regulation and weak suppression are a recipe for banking problems. Poor
enforcement capacity robs weak suppression of what little effect it might have.
--De cient legal framework for loan recovery:
poor prudential and regulation are suppression are made worse by an inadequate legal framework.
The banks can absorb some low level of non performing loans if there is a strong legal framework
for loan recovery foreclosure and liquidation. Bangladesh lacks such a framework.
--Shallow capital markets:
discipline of bank are only the problem in the nancial sector of Bangladesh. Capital markets are
small and dont offer a competitive alternative to bank borrowing. Stock market capitalization
retailed to GDP is 25 to 75 times smaller than in neighboring south Asian country.
Measures for cure:
curing the nancial sector will not be easy enough, nancially or politically. It needs
comprehensive program both short term and long term for making the nancial sector viable and
competitive. For this following measures can be considered-1.Tightening loan recovery and its legal framework:
the govt needs to undertake comprehensive measures for loan recovery. So govt should take the
following steps
a)Amend the nancial loan court act to strengthen the loan courts, giving them the powers to
execute their decrees and staf ng them adequately.
b)Increases the number of loan courts, especially in Dhaka, Chittagong and Khulna to clear the
backlog of cases.
c)Strictly enforce all laws against white collar crimes.
2.Strengthening Bangladesh bank:
tighter regulation should be pleased in to avoid shocks to the health of banking system. For this
the and Bangladesh bank should:
a)Tighten regulations on bank capital and provisioning and ownership.
b)De ne and penalties for insider lending
c)Ensure that Bangladesh bank autonomy legal status and organizational structure.
3.Restricting private bank:
to deal with trouble private banks, Bangladesh bank should be develop criteria for selecting banks
for restricting.
4.Privatizing nationalized commercial banks:
privatizing nationalized commercial banks is required to cure the nancial system. However in
privatizing the banks the govt should:
a)Appoint nancial advisor with comprehensive term of reference for selling the rst bank.
Develop a strategy for dealing with delinquent debt of state enterprise in co-ordination with the
privatization program for state enterprise.
5.Strengthening accounting and auditing practice:
the govt needs to require auditing practice to the doubtful sector.




6.Implementing new information technology:

Bangladesh banks regulatory function would be easier to manage with computerization and real
time data communication links with the commercial banks it regulates.
7.Developing staff skills:
professionalizing the banking because will generate large long term payoffs in the form of a more
ef cient banking system.
8.Depending capital market:
the govt should take step to increase the ability of capital markets to ef ciently provide long term
funds through debt and equity nancing. Thus the reforms include:
---- strengthening prudential regulation in the stock market and gradually removing over
restrictive and ineffective regulation on share issuers and market makers.
---- strengthening the securities and exchange commission.
9.Restricting state owned development nancing institution:
strategy for deepening the nancial system must give special attention to development nancial
institution, the traditional but now ineffective source of term nance to help industry respond to
the growing economic liberization.
10.Strengthening contractual saving institution:
the govt should examine ways of Strengthening non depository contractual savings institution
take necessary step which is really needs able.
above discussion has shows the nancial sector of Bangladesh is not functioning well and it needs
a lot of reforms and reappraisals. For this govt should come with crash program which must be
implemented promptly with courage and passion. Otherwise all the program and efforts will go to
This article is written by Md.Azizul Islam Shahin

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