The Centre for Policy Dialogue (CPD) yesterday criticised the establishment of the Financial Institutions Division (FID) of the finance ministry as it compromises the sovereignty of Bangladesh Bank.

This is because the mandate of the FID clearly states that its primary function is to ensure proper administration and interpretation of the Bangladesh Bank Order, 1974.

Besides, orders relating to specialised banks, state-owned banks, and insurance and financial institutions all fall under the purview of the FID as well, said Fahmida Khatun, executive director of the CPD.

"And by asserting this function in its mandate, the FID has established its authority to oversee the governance of Bangladesh Bank," she added.

She made these comments at a dialogue, styled "What Lies Ahead for the Banking Sector in Bangladesh?", organised by the CPD at Lakeshore Hotel in Dhaka.

Fahmida also pointed out that the FID's mandate directly contradicts the Bangladesh Bank Order, which states the main function of the central bank is to regulate and supervise banking companies and financial institutions.

"So, it seems a regulator was formed to oversee another regulator," she said.

Ever since the establishment of the FID, new banks have been given licences on political grounds, the rate of non-performing loans has increased and overall governance in the banking sector has worsened significantly, she added.