Putting banking sector on a strong footing

Performance of state-owned commercial banks (SoCBs) of the country has long been a topic of discussion in the country. The involvement of the SoCBs in general and Sonali Bank in particular, in facilitation of squandering of public deposits, in collusion with a section of dishonest business people, is now an open secret. Following the Hall-Mark episode in Sonali Bank, more cats came out of the bag and equally startling revelations of similar mafia-centric malpractices in other SoCBs came to light. Court cases against the Hall-Mark scam have been filed, legal exercises are on, lawyers have been sweating inside their jackets and some accused have been in and out of the prison a number of times. The common people do sincerely hope that justice will be meted out. Law cannot absolve these criminals of the heinous crimes they committed.
Where actually do the private commercial banks of Bangladesh stand as far as overall banking operations along professional lines are concerned, compared to those of the SoCBs? A good number of private commercial banks showed declining trends in their operational profits in 2013. Some banks, including the ones that have been showing steady progress over a long period of time, however, made good profits.
But there are also some private banks which, as a number of analysts suggest, presented inflated profit figures. It is generally assumed that some restrictions on lending operations due to widespread fraud in the banking sector, loan recovery-related problems in the wake of a restive political situation last year, reduction of imports, and decline of investment and aberrations in stock market, affected the profitability of the overall banking sector.
Word is already around that a good number of banks in the country are passing through a transition period or a difficult time. Many countries of the world have faced similar hurdles when volume of their unutilised resources and number of bad loans mounted, stock prices fell markedly and profits declined substantially. This is a kind of situation that has to be tackled with a cool head. The first and foremost task is to get a bank's portfolio (total financial assets including deposit, investment, share, bond, cash money), particularly the loan portfolio, properly audited by the reputed audit firms. At the same time, the status of collaterals against the loans needs to be reviewed. Supervision has to be geared up for contracts and undertakings or guarantees. Because, big loans are at times approved on the basis of fulfilment of only a few conditions. This is also prompted by the fact that the loan-seekers are always in a hurry and the officers, assigned with loan distribution, are always under pressure to either open letters of credit (L/Cs) or disburse loans hurriedly. Mostly due to time constraints and, at times, some extraneous pressures, it becomes difficult for banks to observe all the formalities while sanctioning or approving loans. The red zone for the banks lies in areas where supervision, monitoring and compliance issues are ignored or compromised, deliberately or otherwise. Actions in such areas have to be followed impeccably. Most banks state that they have risk management culture, through its reflection in a good number of banks is yet to be seen or felt to the visible or desired extent.
A good number of the country's banks do, at times, approve and disburse loans without really making proper financial analysis, project evaluation or review of collaterals. Things do need to be improved here. Time has come to establish firmly transparency and accountability. Banks should disburse loans, only after making proper evaluation of the proposals and collaterals against loans and in total compliance with the rules of business and guidelines provided by the central bank. There is no other choice if the operations of the banks are to be further improved, discipline is to be properly enforced and safety of people's deposits or savings with them is to be ensured.      
Those who operate the banks can pause and ponder over some basics like having the right guidelines in respect of risk management policy, audit policy, compliance policy and internal control policy or whistle-blowing policy. The moot issue is compliance with such guidelines, having an adequate number of capable manpower.
Banks in Bangladesh are mainly dependent on letter of credit (L/C) or L/C-related import business and disbursement of loans. Besides, they tend to give more priority to large and influential borrowers than to the interests of the depositors. Ideally, a few other areas should be taken care of, in order to make banking services more inclusive and profitable. These are: cash management, transaction banking, wholesale and corporate banking, retail banking and retail product development, and above all, efficient and effective investment of deposits. Proper accomplishment of such jobs will result in expanding the sphere of services, increasing profit, raising the quality of asset portfolio and their diversification, on the one hand, and reducing operating expenses of funds, on the other. Then the banks will be placed on a stronger footing, to face and avert difficult times, as and when they come.  
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