Faulty corporatisation of NCBs
Monday, 1 December 2008
Shamsul Huq Zahid
If you are an accountholder of a recently corporatised state-owned bank having your account with its principal branch located at the ground floor of the Bank's Head Office in the business district of Motijheel-Dilkusha, you have to jostle with employees of the bank for en-cashing your cheque. It may take several hours to collect your money. The management of the branch has thought it proper to put both their clients and employees on the same queues.
If for any reason your cheque gets bounced, none of the officials and employees working inside the glass enclosure would notify you. After a long wait, you yourself will have to go inside the enclosure to locate the cheque. You would find most officials and employees of the bank non-cooperative as they were before corporatisation of the bank.
Except for the addition of the word-'Limited', at the end of their names and the appointment of highly-salaried chief executive officers (CEOs) and a few consultants under the World Bank financed 'Bank Modernisation' project, one would notice not even an iota of change in the day-to-day operations of these banks. The corporatised banks have remained just the old wine in new bottles.
The government, actually, has not been honest in its purpose as far as the corporatisation of the state-owned banks is concerned. It appears that the finance ministry was more interested in fulfilling the conditions set by the World Bank than making the banks dynamic and competitive.
The issues of ownership and the constituents of the board of directors are vitally important here. Unless and until the private sector representation in the boards is made proportionately higher than that of the public sector by offloading the major part of their shares in the stock market any qualitative change in the performance of these banks is highly unlikely.
It is assumed that the divestment of the state-owned banks by transferring their ownership outside the stock market is unlikely to happen, particularly after the failed bid to transfer the Rupali Bank, another largely state-owned bank, to a Saudi buyer. The multilateral lenders who wanted an early divestment of the Rupali have recently changed their stance. They have suggested full privatization of the state-owned bank through the stock market. A little over 6.0 per cent of the stocks of the bank are now held by individual investors.
All concerned are of the view that there would be no qualitative change in the performance of the state-owned banks if their present style of operation and management continues. The central bank governor does also subscribe to this view. Speaking at a roundtable discussion sometimes back, the BB governor 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.
What is ailing the newly corporatised state-owned banks is 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, their share in both deposit and credit has declined substantially over time.
The extent of the NPL problem is better represented by the NPL figures of these banks. The size of the NPL in the country's largest bank, the Sonali Bank, was Tk. 85.47 billion as of June 30 last, which was equivalent to nearly 45 per cent of the bank's total outstanding loan amount. The amount of classified loan of the bank had increased by nearly 5.0 percent in the last quarter of the last fiscal despite recovery of Tk. 2.46 billion from its defaulting borrowers during the same period. The sizes of the NPL were nearly 20 per cent for Janata Bank and 27.50 for Agrani Bank of their respective total outstanding loans as of June 30 last.
Not much progress could be achieved either even after their corporatisation. This has annoyed even the finance adviser. After a review of the NPL situation a couple of months back, the adviser cautioned the CEOs of these banks to improve their performance, particularly in the recovery of the NPL or else get their contractual appointment terminated.
The frequent interference of the government in the management affairs as well as their loan decisions had made the situation worse for the newly corporatised banks earlier. For instance, Sonali Bank, the largest bank in the country, even a couple of years back used to float in excess liquidity and provide the maximum amount of funds to the call money market. That bank does no more enjoy that comfortable liquidity position. Some months back, the bank was forced to borrow fund from call money market, mainly 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. The Janata Bank also had had similar experience on many instances in the past.
The government has always considered the public sector banks as its fiefdom. Whenever it needed money to tide over problems facing some ailing state-owned enterprises, it has asked these banks to arrange funds. There is no guarantee that the government would not do the same in future when it faces similar situation.
So, there is an urgent need to bring about qualitative change in the operations in the state-owned corporatised banks to put them in a strong footing. The government being the owner does need to devise proper means to achieve that objective.
zahidfe@yahoo.com
If you are an accountholder of a recently corporatised state-owned bank having your account with its principal branch located at the ground floor of the Bank's Head Office in the business district of Motijheel-Dilkusha, you have to jostle with employees of the bank for en-cashing your cheque. It may take several hours to collect your money. The management of the branch has thought it proper to put both their clients and employees on the same queues.
If for any reason your cheque gets bounced, none of the officials and employees working inside the glass enclosure would notify you. After a long wait, you yourself will have to go inside the enclosure to locate the cheque. You would find most officials and employees of the bank non-cooperative as they were before corporatisation of the bank.
Except for the addition of the word-'Limited', at the end of their names and the appointment of highly-salaried chief executive officers (CEOs) and a few consultants under the World Bank financed 'Bank Modernisation' project, one would notice not even an iota of change in the day-to-day operations of these banks. The corporatised banks have remained just the old wine in new bottles.
The government, actually, has not been honest in its purpose as far as the corporatisation of the state-owned banks is concerned. It appears that the finance ministry was more interested in fulfilling the conditions set by the World Bank than making the banks dynamic and competitive.
The issues of ownership and the constituents of the board of directors are vitally important here. Unless and until the private sector representation in the boards is made proportionately higher than that of the public sector by offloading the major part of their shares in the stock market any qualitative change in the performance of these banks is highly unlikely.
It is assumed that the divestment of the state-owned banks by transferring their ownership outside the stock market is unlikely to happen, particularly after the failed bid to transfer the Rupali Bank, another largely state-owned bank, to a Saudi buyer. The multilateral lenders who wanted an early divestment of the Rupali have recently changed their stance. They have suggested full privatization of the state-owned bank through the stock market. A little over 6.0 per cent of the stocks of the bank are now held by individual investors.
All concerned are of the view that there would be no qualitative change in the performance of the state-owned banks if their present style of operation and management continues. The central bank governor does also subscribe to this view. Speaking at a roundtable discussion sometimes back, the BB governor 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.
What is ailing the newly corporatised state-owned banks is 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, their share in both deposit and credit has declined substantially over time.
The extent of the NPL problem is better represented by the NPL figures of these banks. The size of the NPL in the country's largest bank, the Sonali Bank, was Tk. 85.47 billion as of June 30 last, which was equivalent to nearly 45 per cent of the bank's total outstanding loan amount. The amount of classified loan of the bank had increased by nearly 5.0 percent in the last quarter of the last fiscal despite recovery of Tk. 2.46 billion from its defaulting borrowers during the same period. The sizes of the NPL were nearly 20 per cent for Janata Bank and 27.50 for Agrani Bank of their respective total outstanding loans as of June 30 last.
Not much progress could be achieved either even after their corporatisation. This has annoyed even the finance adviser. After a review of the NPL situation a couple of months back, the adviser cautioned the CEOs of these banks to improve their performance, particularly in the recovery of the NPL or else get their contractual appointment terminated.
The frequent interference of the government in the management affairs as well as their loan decisions had made the situation worse for the newly corporatised banks earlier. For instance, Sonali Bank, the largest bank in the country, even a couple of years back used to float in excess liquidity and provide the maximum amount of funds to the call money market. That bank does no more enjoy that comfortable liquidity position. Some months back, the bank was forced to borrow fund from call money market, mainly 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. The Janata Bank also had had similar experience on many instances in the past.
The government has always considered the public sector banks as its fiefdom. Whenever it needed money to tide over problems facing some ailing state-owned enterprises, it has asked these banks to arrange funds. There is no guarantee that the government would not do the same in future when it faces similar situation.
So, there is an urgent need to bring about qualitative change in the operations in the state-owned corporatised banks to put them in a strong footing. The government being the owner does need to devise proper means to achieve that objective.
zahidfe@yahoo.com