Recast of bank boards to stop scams underscored

Dishonesty and indiscipline are principally responsible for the recent serial financial frauds in the country's banking sector, senior bankers and experts said and proposed a recast of the bank boards.    
They underscored ensuring good governance through restructuring the boards of the banks alongside applying due diligence by the bankers in sanctioning loans so that the public money is not misdirected.
The observations and reform propositions came during discussions held at a bankers' meet at the Bangladesh Institute of Bank Management (BIBM) in Dhaka Sunday with Moazzem Hossain, editor of the Financial Express (FE), in the chair.
Non-performing loans (NPLs) are still number-one problem in the country's banking sector for lack of prudential banking, according to them.
The volume of classified loans increased by 11.58 per cent to Tk 572.91 billion in the third quarter (Q3) of 2014 from Tk 513.44 billion in previous quarter of this calendar year. It was Tk 481.72 billion in the Q1 in 2014.
During the Q3, the share of NPLs in the total outstanding loans from the banking system rose to 11.60 per cent from 10.75 per cent in the previous quarter. It was 10.45 per cent in the January-March period of this calendar year.
Senior bankers, experts, academics and researchers stressed ensuring good governance in the banking sector through improving autonomy along with supervisory and monitoring rolls of the central bank.
Listing a number of banking crimes, including Hall-Mark and Bismillah groups' scams, Khondhkar Ibrahim Khaled, former deputy governor of Bangladesh Bank (BB), said it was a matter of concern for depositors in particular and common people in general.
He noted that the chairmen, directors and managing directors of the state-owned Sonali Bank and BASIC Bank are appointed by the government. They cannot remain unaccountable for such big scandal. But the chairmen and directors were not questioned by the authorities, he said.
"Dishonesty virus has paralyzed the private banking sector as well," he further said in his comprehensive observations over the entire spectrum of banking operations.        
Mr. Khaled, also Dr. Muzaffer Ahmed Chair Professor of the BIBM, made the observations in his keynote speech titled 'Banking in Bangladesh: Challenges and Ways Out' at the annual banking conference 2014, organised by the BIBM.
About appointment of observer by the BB to five commercial banks, the former deputy governor asked: "Can observers change the scenario?" Probably some banks deserve an administrator instead of observer from the central bank.
 "Dishonesty is highly cancerous," said the veteran banker. "Nothing short of surgery can cure it."
He pointed out that concerned citizens are raising an unanswered question: 'Who's to bell the cat?'
Observers are empowered to attend policy-making meetings, including that of the board of directors, executive committee and audit committee, of a bank to oversee their functions.
Terming concentration of credits as a new challenge for flourishing the banking sector, the senior banker said this phenomenon pushed the banks into fatal risks.
The private banks are more exposed to such position, compared to the state-owned banks. "Is it because of owner-management collusion?"
There are large-scale allegations of interfering with professionals by the owners of banks, he told the meet, adding that owners are using stick-and-carrot policy for hiring and firing senior executives.
"It is alleged that owners allure the executives with very high salary, disproportionate with salary of other executives of the same bank, for the purpose of using the chief executive officer (CEO) to serve owners' undue interest," the senior banker noted.
At least four CEOs have been eased out under the guise of resignation in the last six months, according to Mr. Khaled.
"This is indeed a danger signal for the banking organizations," he cautioned.
"Considering depositors' role in activating and promoting business and shareholders' insignificant contribution to deployable funds of banks, we may ponder over the problem and bring reform in restructuring the board of the bank," the former deputy governor proposed.
According to his proposal, 50 per cent of the board members may be elected by the shareholders to look after their interests. The rest 50 per cent may be identified, selected and appointed by a special commission to safeguard the interests of the depositors.
"Independent directors must not be depended on shareholder- directors. In the face of gross interference, delinquency and greed of shareholders, similar reform deserves consideration not only to protect depositors but also to promote economy of the country," Mr. Khaled said.
The FE editor emphasised the need for addressing different issues, including applying due diligence by the bankers, making proper SWOT (strengths, weaknesses, opportunities and threats) analysis befitting the needs of the time, ensuring good governance, pursuing the course of reforms as an on-going effort and recruitment of skilled manpower in the banking sector.
 "Bankers need to apply due diligence before sanctioning and disbursing loans properly to minimise risks and irregularities in the banking sector," Mr. Hossain said.
Application of due diligence, he added, will help to ensure good governance in the banking sector.
 "The operational activities of the banks should be run by the CEOs, not boards, and the latter should only give policy guidelines within the regulatory framework of the central bank," he observed.
He also said media played a befitting role in unearthing the scams and cases involving default loans that are hindering the growth of a healthy banking sector in the country on a sustainable basis.
 "I consider the media has played its 'due role' in identifying the loopholes, irregularities and scams which have occurred in different banks recently," the senior editor observed.
Toufic Ahmed Choudhury, director-general (DG) of the BIBM, Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh (ABB) and Shah Md. Ahsan Habib, professor and director of the BIBM and chairman of the organising committee of the conference, also spoke on the occasion.
The Financial Express and the Banik Barta were media partners of the event.
    siddique.islam@gmail.com