Finance Minister AMA Muhith's observation that bankers are deliberately trying to turn the borrowers into defaulters with a view to bringing the latter under their control would be greeted with certain degree of scepticism in the country's banking circle.
Mr Muhith, who has been highly critical of the performance of the state-owned banks (SoBs) for quite some time, made the observation at a workshop organised by his ministry to review the conditions of those banks last Saturday.
The finance minister's observation, seemingly, was directed at the SoBs, not the privately-owned banks.
The allegation made by Mr Muhith is not totally unfounded. A section of unscrupulous bankers under various pretexts withhold payments of loan instalments to their clients unless the latter pay them speed money. Refusal to make this kind of undue payment does only invite troubles for borrowers. At one stage they are forced to default on servicing their debts to banks. The bankers then eagerly wait for rescheduling prayers coming from borrowers, for that creates opportunities to demand even bigger amounts. However, the private sector banks are not totally immune to this kind of problem.
The fact remains that deliberations at the workshop were quite focused on the problems facing the state-owned banks and failures on the part of the government and relevant others to streamline their operations. The discussions made it amply clear that the SoBs are in serious trouble because of their high level of classified loans.
"I feel ashamed", said the finance minister pointing to the surge in classified loans in SoBs. The share of classified loans in their total outstanding loans is over 27 per cent while the national average of the same is 10 per cent.
The finance minister has no reason to be so much disappointed, for the situation with public sector banks has never been perfect. They have always carried a huge burden of non-performing loans (NPLs). On occasions, the size of the NPL had gone down because of some reform measures. But it did not last long. The situation deteriorated again in a rather relaxed administrative and regulatory environment.
But one has to admit the fact that never before had the SoBs been hit by so many large loan scams like the ones in recent times. The scams have, in fact, jolted the entire banking industry. But what has pained the conscious section of society is the government's reluctance to punish the actual wrongdoers from amongst the borrowers and the members of the board of directors of the SoBs. So, all the lamentation on the part of the finance minister or relevant others does carry little meaning.
This is evident from the statement made at the Saturday's workshop by Mr. Abdur Razzaque, a former minister and chairman of the parliamentary standing committee on the ministry of finance. He regretted that no action had been taken until now by the Anti-corruption Commission against Mr. Abdul Hye Bacchu, immediate past chairman of the BASIC Bank despite his direct involvement in a major loan scam.
Before pointing the accusing fingers at the SoBs' management, the government policymakers should also review their own role as far as the operation of these banks is concerned. The government is almost equally responsible for the current state of the SoBs. It has always considered these banks as their fiefdoms and interfered in their administrative matters and loan decisions.
The sitting chairman of a large SoB and a noted economist narrated at the workshop how his bank and some other SoBs got themselves in trouble by complying with a government advice to lend funds to the private builder of Jatrabari-Gulistan flyover. A substantial sum of the banks is now stuck up there.
Instances of lending under direct influence of politically powerful quarters are many. Some large borrowers, who can efficiently use their political connections, prefer going to the state-owned banks for funds. The private banks, in most cases, avoid borrowers with questionable track records. However, if it is difficult to give the private banks clean chits without any sort of reservations, they too are facing problems with default loans. Their average NPL rate is around 5.0 per cent.
The issue of merger of SoBs also came up at the workshop. The finance minister said he was highlighting the need for such merger for last one and a half decades. But he found the legal provisions to this effect highly inadequate and promised to formulate those within the next couple of years.
But one individual, Dr. Toufic Ahmed Chowdhury, director general of the Bangladesh Institute of Bank Management (BIBM) hit the crux of the problem facing the SoBs. Speaking at the workshop, he maintained that the current state of the SoBs is the true manifestation of lack of good governance in those banks. Malgovernance becomes even stronger when the issue of political loyalty dominates over competence while government chooses people for the board of directors or management hierarchy of entities under its control. The same is true in the case of state-owned banks.
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