New banks, parties concerned and related facts

The government is willing to approve a few licences to establish new commercial private banks on political grounds. Presently there are 48 commercial and specialised banks and 29 Non Banking Financial Institutions (NBFIs) operating in the country. The government's main rationale for granting new licenses is that, no new commercial bank has been established during last decade or so. Over these years, the economic arena has expanded and the spectrum of both internal and international trade and commerce has increased. Matching with this progress, many banks have gathered huge profits every year, sometimes the growth rate of profit reaching up to 40 per cent in last couple of years for a few banks. Investment in capital market played a vital role behind this huge profit margin of banks over last couple of years as well. There are few banks whose investment in capital market is not significant but they earned profit of around Tk 2.0-3.0 billion from this market. So, many are considering that it would hardly make any adverse impact if a few more new banks entered the economy. Again, is another group of people who consider that economic consideration rather than political consideration should be the criterion and based on that the government should refrain from allowing issuing any new licenses right now. From the regulatory bodies' point of view, the existing monitoring and supervising mechanism is still not coherent and there are plenty of opportunities to get them improved. Discussion regarding the evaluation criterion (whether political or economic) of approving new licences is not my focus point. Yet it can be mentioned that one of the reasons behind establishing new banks based on political ground is that being the director of a bank enables himher to achieve sizeable amount of profit and the opportunity to enhance individual social status and thereby a chance to become CIP (Commercially Important Person). In our country being the director of a financial institution is considered far better and a more respectable social status rather than any other private organisation. The control and influence of the board of directors regarding the management of bank and taking decision on critical issues is pervasive. For all these reasons, a situation might arise where we might have to allow licences for few more new commercial banks on political grounds. Pragmatic analysis of the internal issues, i.e. how and whether the new banks' management would be able to succeed in managing them well in this economy would guide us to a feasible decision on the issue. No matter how easy the process of establishing new banks, it would be very difficult for them to run and maintain business with adequate sound portfolio and achieve target profit, especially in such a vulnerable political environment and stressed out economy like ours, The commercial private banks of our country have consolidated and established their position in banking arena with internationally recognised standards in terms of service, business procurement, implementation and installation of technology and infrastructure. As a result, many foreign banks have limited their area of business, or left the country closing their operations here. Unfortunately over the last five-seven years, the trend of development in private commercial Banks has come to a standstill. Lack of competent bank management, failure to recruit developgroom competent human resources, failure to put right people in right place, reluctance to adapt to new structure, technology and mindset are recognised as reasons for de-motivation in organisations. With market size remaining the same, banks have to remain very vigilant and competitive to remain profitable. As a result, private commercial banks have to offer everything possible (sometimes beyond regular practice) to retain or attract the attention of any new customer beating off competitors. Consequently the flow of disbursement of loans has increased, which sometimes runs the risk of diversion of fund (purchasing land, investment in capital market, purchasing luxury items i.e. apartment, car, etc.) from the intended purpose. Sometimes the amount of bad loans increase since the real outcome of the banks' investment is not adequately fruitful for the investments which are not utilised for the purpose intended. But we are not always able to disburse loans to the thrust sectors for proper sprouting of commerce and industry in our country. Nowadays bank management are concentrating more on development of designation rather than development of skill, merit and experience. Sometimes one may get undue position or increments in salary due to being a part of a group of employees switching to another organisation or capitalising on undue influence, but they are not able to show job performance justifying their position or compensation package. Many of them try to develop their individual position rather than development of the institution; sometime they even adopt unfair means to reach their goals. Banks try to emphasise on developing corporate culture, rules and regulations based on strict principles in words but very insignificant efforts are made to materialise them. Consequently the brand image of the organisation may rise but the overall image and branding of the staff employed there remains the same. In our present economic condition, unless fresh injection of investments is made, it will make no difference whether any new bank comes to the market. It will create more chaos among the existing banks to sustain their share of market. Friction will increase in the banking sector and people working in financial sector in this unhealthy atmosphere of cutthroat competition will vie to market financial asset and liabilities. Once upon a time, large numbers of female employees were being hired for the marketing of financial products for banks and insurance companies. As a result, opportunities for women were created to a great extent, but they were engaged in their jobs without giving enough consideration regarding their skill and experience. Needles to say, the outcome was not even close to the one hoped for. Many banks recruit direct sales executives with high educational qualification on a temporary basis. The same fate, as mentioned for female employees earlier, awaits them as well. Limitation of, resources, opportunities, scope and market makes the situation worse if more new banks enter the arena. As soon as the new banks get their licences, they will start opening branches in or around urban areas. Now even the suburban areas are abundant with branches of commercial banks. Allowing insertion of a few more branches in the same commanding area will simply squeeze the market even more. Authorities should consider whether they require new bankbranches rather than expanding the services of existing bankbranch offering better and friendlier service to customers. Although many believe that establishing new banks will create competitiveness, and thereby increase the standard of customer services, offer innovative new financial products, make more capital available for industries, decrease the interest rates and create a consistent distribution of profit among the banks. We should also consider seriously regarding the after effect of all the factors discussed above. Otherwise like the number of science students decreasing in our country, the number of talented and meritorious candidates taking the job of banker with pride will decrease. Introducing new financial products or derivatives by local Banks are hardly found. Rather we are comfortable following the foreign banks' product range at such a point of time when foreign banks have already extracted the last drop of opportunity left for us in the market. We are still not being able to establish worldwide recognised banking services (huge volume in Hong Kong, Singapore, etc.) like "Factoring" even by the strongest banks of our country. Still we are dependent on fixed available products and a little flexibility in rate of interest and commission. We are yet to initiate research and development process to introduce, innovative products for our customers. Heaven forbid, if anything goes awry due to a wrong decision made in such a sensitive financial industry, the outcome will be disastrous. The examples of USA and Greece are burning issues around the world. So we better look before we leap. The writer can be reached at Email: sharifkhan64@gmail.com