Probe commission and M&A for banks

FE Team | Published: February 27, 2018 20:10:42

Experts and bankers have suggested for, among others, formation of a bank enquiry commission and forced mergers and acquisitions (M&As) of poor-performing banks. The couple of suggestions, made at a function, organised by the Bangladesh Institute of Bankers (BIBM) early this week deserve serious consideration. These are obviously aimed at helping the banking industry that is now riddled with a host of problems and irregularities. The Finance Minister some days back dismissed the need for formation of a banking commission as a permanent entity, backtracking on his earlier statement made in one of his budget speeches in the not-too-distant past. Meanwhile, putting in place a banking enquiry commission or committee for a limited time to carry out certain tasks should not be a problem.
In fact, the forced M&As of troubled banks should start as soon as the proposed enquiry body finishes its job of listing the banks that are weak and incapable of continuing their independent existence. And that should be done so that the M&As do not lead to the emergence of any oligopolistic situation in the sector forcing it to run afoul of the provisions of the anti-monopolistic Competition Act. However, unless and until the government demonstrates its firm will to straighten things up in the sector, the implementation of neither of the recommendations mentioned above would be possible. Most banks, particularly the ones that indulged in irregularities because of regulatory weaknesses and political interference, would be unlikely to open up unless they are forced.
There is no denying that the image of the entire banking industry is now seriously dented due to massive irregularities in loan sanctioning and disbursement, appointment of incompetent directors in state-owned banks and entry of a good number of banks under political considerations. Policymakers who are partially responsible for deterioration of the situation do also feel now the need for improving the situation urgently.
Statistics presented by the Finance Minister in national parliament last Monday do amply denote how difficult the state of affairs in the banking sector is at the moment. Four state-owned and three private banks, according to the minister, together need capital replenishment worth about Tk100 billion. However, it is nothing unnatural for some banks needing such a sizeable capital injection in a sector that has a huge backlog of classified loans -- over Tk 800 billion or more than 10 per cent of the total outstanding loans. Many tend to believe that estimates on individual bank-wise classified loans and their respective capital shortfall are conservative ones and an in-depth assessment might reveal a few more shocking information.
It is incontestable that the situation in the banking sector calls for initiating a few urgent and decisive steps. The formation of a banking enquiry commission and forced M&As can be considered to be important steps in this direction. But working of the proposed commission and operations of M&As are unlikely to be easy because of both overt and covert opposition. So, the commission should have substantial authority to look into the problems, gather information and make appropriate recommendations. Instead of pushing the report of the commission under the carpet, the government should also take its content seriously.
Equally, the implementation of M&As would not be plain-sailing: the sponsors of the troubled banks would oppose the move to maintain their hold on those. The central bank and the government, if they are really serious about improving the situation, would have to move fast and do the needful.