Corporatisation not a panacea for NCBs' problems
Tuesday, 19 June 2007
THREE nationalised commercial banks (NCBs) - Sonali, Janata and Agrani - are now in the process of being corporatised, notwithstanding the fact that the government will continue to be their sole owner. The Bangladesh Bank has already issued licences to these banks to operate as public limited companies. The status quo in ownership, however, has prompted many to raise serious doubts about the success of the corporatisation move seen as the first step towards future privatisation of the giant trios in the country's banking sector.
While participating the other day in a roundtable discussion, a number of high-profile speakers, including the governor of the central bank, made it no secret that corporatisation of the three NCBs would bear no fruit if the move was not backed by steps to make them competitive, dynamic and independent. The NCBs in question are in bad shape with their huge burden of non-performing loans (NPLs), poor management and poorly paid under-motivated workforce. These banks, in spite of their all shortcomings, used to dominate the sector until the early nineties. But with the gradual entry of a large of number of better-run private sector banks, they are no more in the driving seat and their share in both deposit and credit has declined substantially over time. The frequent interference of the government in management as well as loan decisions - these banks are supposed to enjoy certain amount of freedom in their operations - has made the situation worse for the NCBs. For instance, Sonali Bank, the largest bank in the country, even a couple of years back used to have a substantial amount of excess liquidity and provide the maximum amount of funds to the call money market. That bank, now being in deep liquidity problem, often resorts to borrowing funds from the call money market because of the failure of the Bangladesh Petroleum Corporation (BPC) to repay its huge debts. The Sonali Bank management was directed by the government to continue lending to this delinquent public sector borrower. It has been same with the Janata Bank.
However, the interference by the ministry of finance alone has not been responsible for the present deplorable state of the NCBs. There are other factors, including lack of proper management guidance, influence of trade unions, poor accountability, non-delegation of responsibilities etc. What will be the state of affairs of these banks after their corporatisation? Will it be the old wine in a new bottle? The governor of the central bank, the chairman of the Securities and Exchange Commission (SEC), the chairman of the Association of Bankers, Bangladesh and other speakers at the roundtable wanted the government to avoid the past practice and constitute the boards of the corporatised NCBs with skilled, knowledgeable and efficient people who are adequately familiar with banking operations. The newly constituted boards would be required to look deep into the management as well as operational problems facing the NCBs. To make these banks at par with their private sector counterparts so far as efficiency is concerned, the boards should have full freedom to hire efficient management personnel from the private sector offering attractive compensation packages, fire the inefficient hands and provide incentives to the deserving officials and employees. The NCBs that, according to the central bank governor, are "now in a feeder road" will not "run at high speed through highways" until and unless the preconditions are met. The sooner the policymakers understand this hard truth, the better will be the outcome.
While participating the other day in a roundtable discussion, a number of high-profile speakers, including the governor of the central bank, made it no secret that corporatisation of the three NCBs would bear no fruit if the move was not backed by steps to make them competitive, dynamic and independent. The NCBs in question are in bad shape with their huge burden of non-performing loans (NPLs), poor management and poorly paid under-motivated workforce. These banks, in spite of their all shortcomings, used to dominate the sector until the early nineties. But with the gradual entry of a large of number of better-run private sector banks, they are no more in the driving seat and their share in both deposit and credit has declined substantially over time. The frequent interference of the government in management as well as loan decisions - these banks are supposed to enjoy certain amount of freedom in their operations - has made the situation worse for the NCBs. For instance, Sonali Bank, the largest bank in the country, even a couple of years back used to have a substantial amount of excess liquidity and provide the maximum amount of funds to the call money market. That bank, now being in deep liquidity problem, often resorts to borrowing funds from the call money market because of the failure of the Bangladesh Petroleum Corporation (BPC) to repay its huge debts. The Sonali Bank management was directed by the government to continue lending to this delinquent public sector borrower. It has been same with the Janata Bank.
However, the interference by the ministry of finance alone has not been responsible for the present deplorable state of the NCBs. There are other factors, including lack of proper management guidance, influence of trade unions, poor accountability, non-delegation of responsibilities etc. What will be the state of affairs of these banks after their corporatisation? Will it be the old wine in a new bottle? The governor of the central bank, the chairman of the Securities and Exchange Commission (SEC), the chairman of the Association of Bankers, Bangladesh and other speakers at the roundtable wanted the government to avoid the past practice and constitute the boards of the corporatised NCBs with skilled, knowledgeable and efficient people who are adequately familiar with banking operations. The newly constituted boards would be required to look deep into the management as well as operational problems facing the NCBs. To make these banks at par with their private sector counterparts so far as efficiency is concerned, the boards should have full freedom to hire efficient management personnel from the private sector offering attractive compensation packages, fire the inefficient hands and provide incentives to the deserving officials and employees. The NCBs that, according to the central bank governor, are "now in a feeder road" will not "run at high speed through highways" until and unless the preconditions are met. The sooner the policymakers understand this hard truth, the better will be the outcome.