Of merger and share floatation
Friday, 15 January 2010
Finance Minister AMA Muhith raised a few important issues concerning the country's banking sector at a press briefing following his meeting with the high officials of the central bank and the public sector banks in Dhaka last Sunday. He dismissed the idea of floating shares for public subscription by the three state-owned banks, the Sonali, the Janata and the Agrani, since their financial health is not sound enough, unveiled plans to hike perks and privileges of the officials of these banks and advised the not-so-strong private sector banks to opt for merger to survive in a highly competitive market in the future.
The finance minister's opposition to the floatation of shares by the public sector banks apparently has come in the backdrop of the Janata Bank's recent move to offload a part of its stake in the stock market. Divestment of a state-owned enterprise, whether it is a bank or any other entity, partly or wholly, is a welcome move. But, at the same time, it would be improper on the part of the government to allow problem-ridden enterprises to sell their shares to general investors and, thus, mobilise resources. The Rupali Bank, a largely state-owned bank, which has offloaded less than 5.0 per cent of its shares through the stock market, is a glaring example. The bank has been in the poor-performing 'Z' category of listed issues for its failure to give shareholders any dividend for years after years.
Banks do survive even under difficult circumstances because the central bank has put in place enough measures for their survival. If a public sector bank is in trouble, it has a standby mentor, the government, which would bail it out with taxpayers' money. Such rescue, in the form of re-capitalisation, has happened in the past and is likely to happen in the future. But that is not an ideal situation. The public sector banks, despite having their extensive branch network across the country, have lost ground to their efficient counterparts in the private sector. Their dominance both in lending and deposit mobilisation had come to an end long ago. The finance minister the other day asked the state-owned banks to regain their lost grounds and emerge as strong as before.
However, it is easier said than done. The prevailing situation in the banking industry demands that any bank, private or public, should, among others, have a committed, dynamic and innovative workforce to ensure attractive business growth. The state-owned banks largely lack in that. They are, actually, manned by demoralised workforces who very often compare their unattractive perks and privileges with those of their counterparts in private banks. The government, at last, has decided to formulate an independent and attractive pay structure for the state-owned banks. If and when implemented, the higher perks and privileges are expected to create a positive impact on the officials and employees of these banks. However, to ensure their greater operational efficiency, the public sector banks would be required to go for full automation and offer attractive products to their customers. More importantly, the government should exercise restrain and interfere less in the affairs of these banks. If the steps mentioned above could be ensured, the banks would become financially sound within a reasonable time and fit enough to go public.
The merger issue is the least discussed one in the corporate world of Bangladesh. But the competition in the banking sector, which is becoming stiffer gradually, might soon create a few potential candidates for merger despite all the precautionary measures taken by the central bank. There is no reason to consider the act of merger as something unwanted. Rather merger done at the right time does help the institutions involved to emerge as an entity strong enough to face competition efficiently. The banks that are aware of their individual standing in a highly competitive market should take notice of the advice dished out by the finance minister about timely merger.
The finance minister's opposition to the floatation of shares by the public sector banks apparently has come in the backdrop of the Janata Bank's recent move to offload a part of its stake in the stock market. Divestment of a state-owned enterprise, whether it is a bank or any other entity, partly or wholly, is a welcome move. But, at the same time, it would be improper on the part of the government to allow problem-ridden enterprises to sell their shares to general investors and, thus, mobilise resources. The Rupali Bank, a largely state-owned bank, which has offloaded less than 5.0 per cent of its shares through the stock market, is a glaring example. The bank has been in the poor-performing 'Z' category of listed issues for its failure to give shareholders any dividend for years after years.
Banks do survive even under difficult circumstances because the central bank has put in place enough measures for their survival. If a public sector bank is in trouble, it has a standby mentor, the government, which would bail it out with taxpayers' money. Such rescue, in the form of re-capitalisation, has happened in the past and is likely to happen in the future. But that is not an ideal situation. The public sector banks, despite having their extensive branch network across the country, have lost ground to their efficient counterparts in the private sector. Their dominance both in lending and deposit mobilisation had come to an end long ago. The finance minister the other day asked the state-owned banks to regain their lost grounds and emerge as strong as before.
However, it is easier said than done. The prevailing situation in the banking industry demands that any bank, private or public, should, among others, have a committed, dynamic and innovative workforce to ensure attractive business growth. The state-owned banks largely lack in that. They are, actually, manned by demoralised workforces who very often compare their unattractive perks and privileges with those of their counterparts in private banks. The government, at last, has decided to formulate an independent and attractive pay structure for the state-owned banks. If and when implemented, the higher perks and privileges are expected to create a positive impact on the officials and employees of these banks. However, to ensure their greater operational efficiency, the public sector banks would be required to go for full automation and offer attractive products to their customers. More importantly, the government should exercise restrain and interfere less in the affairs of these banks. If the steps mentioned above could be ensured, the banks would become financially sound within a reasonable time and fit enough to go public.
The merger issue is the least discussed one in the corporate world of Bangladesh. But the competition in the banking sector, which is becoming stiffer gradually, might soon create a few potential candidates for merger despite all the precautionary measures taken by the central bank. There is no reason to consider the act of merger as something unwanted. Rather merger done at the right time does help the institutions involved to emerge as an entity strong enough to face competition efficiently. The banks that are aware of their individual standing in a highly competitive market should take notice of the advice dished out by the finance minister about timely merger.