Synergizing the state-owned banks
October 12, 2011 00:00:00
Mamun Rashid
State-owned banks in Bangladesh were at the receiving end on a number of occasions in the last several months allegedly for putting up directors solely on political consideration in contravention of the ministry of finance's guideline enforced during the interim government and dictating or favouring loans without proper credit appraisal. Besides, questions are now being raised about their asset and liability management, liquidity crunch and also about the boards not allowing the management to reflect their professionalism in day to day management of the banks. Resultant effects of these developments have been an increase in classified loans, low morale of the workforce, declining profitability and backward track on the service model.
Back in 1992, when I was put as the commercial banking head at an Australian Bank, I kept on appealing to Sheikh Akij Uddin (may Almighty bless his soul) of Akij Group to divert a portion of his business to my bank. To my utter surprise, Mr. Akij Uddin told me, it was not his business, rather the business had been put up by the Janata Bank and he was just a custodian.
Same was the case with Harunur Rashid Monno from Monno Ceramics, who told me to teach the modern banking techniques to Sonali Bank folks so that he got better service from the state-owned bank and he had no desire to shift to a bank coming from another country. Incidentally, none of them could hold on to their vows as their next generation had to shift to local or foreign private banks either to get the service they deserved or to support their expansion. Same is the case with large conglomerates like Square group, Meghna Group, City Group, Abul Khair Group, Concord Group and so on; all of them are now happily married with local or foreign private banks.
With 'market-driven' philosophy getting a hold on the entire economy for the past three decades, the state-owned banks have been increasingly losing their market share. The private and foreign commercial banks having employed efficient and skilled resources along with better products as well
as service delivery platform are now driving the country's banking sector.
Mismanagement, political interference, dicey investment and recruitment of incompetent and 'more than required' manpower are major factors that have largely contributed to the current state of the public sector banks. These banks, on the one hand, have lost their business share to more aggressive and efficient private sector counterparts and, on the other, are carrying a legacy of classified loans accumulated over the years.
Development partners, particularly the World Bank, have been extending assistance in various forms to the government for streamlining the public sector banks, including privatization. They pressed for the privatization of Rupali Bank along with the introduction of corporate management in other three state-owned banks. The Rupali Bank privatization bid has failed due to inept handling by the Privatization Commission as well as nasty intervention from the political regime. However, the implementation of the schemes for strengthening three other state-owned banks, which have been prima-facie corporatized, is still in progress with some kind of support from the World Bank (WB).
One of the major objectives of the government's bank modernization project was to get rid of redundant manpower and thereby reduce their operating expenses. The scheme has been partially implemented in Rupali Bank. The second largest public sector bank, Janata Bank, was also reportedly planning to shed large number of jobs, thought I don't have the latest update. Reports say, many have retired voluntarily in the mean time and ministry of finance has approved new recruitments. The ministry is also reportedly considering a better pay scale for the state-owned bank officials to encourage performance and stop exodus of efficient ones to private commercial banks.
The ongoing financial market turmoil in the USA and Europe, which is now hurting other economies too, might have taught the importance of having the state-owned banks to bring in the much needed balance between the market and the state. The strong proponents of free-market economy are now taking stakes in private sector banks worth billions of dollars. They seemed to have little option other than saving the collapsing banks for the sake of keeping their own economies afloat. It is high time that the government in Bangladesh should also bring in necessary reforms in the state-owned banks to strengthen their performance and make them 'fit to run'.
We have seen what the Chinese public sector banks did in the past -- almost a similar story like what has been going on in the public sector banks in Bangladesh -- inefficiency, capital shortage, burden of huge employees etc. But they have realized the mistakes and identified the downsides of these public sector banks and taken a pragmatic view in terms of doing the right things. They have invited strategic investors into these banks, recapitalised them and in due course taken them to capital market and which in turn helped the domestic savings move into more attractive and useful sectors. This also upheld the philosophy of sharing the wealth with the public. An injection of capital also gave the institutions a set of board members, infusion of new blood and a set of qualitative thoughts. Needless to mention that, all these are the vital elements for the revival of any institution that is keen to implement the positive modes of change. I believe readers would agree that positive change means positive outcome, which is extremely necessary at this critical juncture.
The other day, I met a fellow MBA CEO at a state-owned bank and asked him about his top four challenges, to which he replied saying, 1) automation, 2) skilled human resources, 3) non-performing loans and 4) liquidity. Along with him, I would also like to add two more factors proper risk management culture and positive attitude among senior managers to serve the clients diligently. Automation is the key to a better customer service delivery and an enhanced asset-liability management. One cannot but re-emphasize the importance of skilled human resources to ensure better customer service, enriched credit due diligence, efficient funds management and lead the banking sector to desired level towards better financial inclusion. If the state-owned banks cannot address their non-performing loans, their capital will remain under stress, as will their expansion ability and profitability. They need to rationalize classified loans through more 'tight packed' risk management tools and less of undesired interference, improve their internal cash flow through better automation and data mining and thereby divert liquidity to the hungry and growth sectors of the economy, what they are meant for.
(Mamun Rashid is a banker and economic analyst. E-mail: mamun1960@gmail.com)