Bangladesh’s Centre for Policy Dialogue (CPD) on Saturday welcomed the government plan to set up a banking commission in order to save the ailing sector riddled with bad loans, irregularities and weak governance.

“We are excited to learn that the highest political level has given consent to formation of a banking commission. We think that it is a very judicious decision,” said Debapriya Bhattacharya, a distinguished fellow of the CPD.

He was speaking at a media briefing on the proposed bank commission at Brac Centre Inn in the capital’s Mohakhali area.

Fahmida Khatun, executive director of the think-tank, said they were hopeful that the proposed commission would identify the main problems in the banking sector and identify the groups who were “holding the sector hostage”.

She demanded the commission consult the stakeholders, including savers, businesses and think-tanks, before finalising its report.

Their comments came three days after Minister of Finance Mustafa Kamal told reporters that the government planned to form a commission for the banking sector.

Last month, the International Monetary Fund said high and increasing default loans and weak governance in the banking sector, especially in the state-owned banks, remained major policy challenges.

The actual size of bad loans was more than double the officially recognised figure, the lender said.

Official statistics show that bad loan stood at about one trillion taka ($11.8 billion) in December.

Debapriya on Saturday said this was not only a matter of bad loans.

“Bad loans have increased despite hundreds of promises and various incentives.

“But beneath it lies capital and provision shortfalls in banks and there is a fall in profit margins.”

The economist said people’s tendency to deposit their money in banks was becoming weaker.

There was also a problem related to the interest rates both on deposits and loans for investment, he added.

“What is more worrying is that the central bank’s judicious guidelines are being breached in broad daylight.

“These violations are sometimes tantamount to illegal activities. As a result, agencies such as the Anti-Corruption Commission have to get involved in the banking sector.”

He said the statistics of the central bank show that “the banking sector has now become hostage to a handful of people and groups”.

The CPD has been calling for forming a banking commission since the Hall-Mark Group scam came to light in 2012. The little known business group siphoned about 40 billion taka from the state-run Sonali Bank.

Debapriya, who was involved in a committee that worked in 2002 to amend the Banking Companies Act, said: “The crisis in the banking sector was initially an economic problem.

“Later, it snowballed into a political-economic problem. It’s now a completely political problem,” he said.

The economist wondered whether the commission would only look into the banking sector or rather expand its coverage into the non-banking sector as the situation at the non-banking financial institutions was “far worse than the banking sector”.

He asked whether the commission would also look into the role of the central bank.

“What are the problems the central bank is facing in overseeing the banking sector? The central bank is empowered legally.

“It remains to be seen whether the commission would explore why the central bank doesn’t exercise its full authority.”

Debapriya demanded the commission come up with some interim solutions to deal with urgent issues before finalising its report.

He said there was a crisis of trust and transparency in the country’s banking sector.

The proposed commission would have to work to ride out the crisis, he added.