Sticking to the same old track
Monday, 14 September 2009
Shamsul Huq Zahid
The government has reconstituted the boards of three state-owned banks and the BASIC Bank late last week. And many have raised their eyebrows at the appointment of a few ruling party followers as directors to the boards.
According to newspaper reports, there could be more such appointments to the boards of these banks and other government-owned financial institutions during the current week.
Technically, the government has done nothing wrong by appointing the individuals of its choice to the boards of the banks under its control. But selection of a few names is bound to raise the question whether such appointments would help the boards concerned to become more effective and efficient.
Moreover, a few of the latest appointments run counter to a notification issued by the finance ministry in the second week of April last. The notification made special mention about the need for induction of an increased number of professionals into the boards of banks and financial institutions. One would wonder whether all the appointments made by the government last week represented the truly professional people. The finance ministry notification while talking about professionals did mention about, among others, economists, chartered accountants and persons having expertise in money market, economic management and monetary policy.
According to a report published in a leading Bengali daily, the finance ministry did not follow the rules concerned while seeking the opinion of the central bank on the persons it wanted to put on the boards of the state-owned banks. The ministry was supposed to send the detailed information about those individuals. But it sent only names, nothing else, to the Bangladesh Bank. Without such information it was difficult for the credit information bureau of the BB to know whether any individual is a bank loan defaulter or not. A bank loan defaulter cannot become a director of any bank, public or private.
Appointment of political elements or ruling party sympathizers to the boards of the state-owned banks and financial institutions is nothing new in this part of the world. It has happened during the rule of most political governments. However, some governments did put in their men on the boards without provoking much criticism while others did it in a carefree style without bothering much about who says what.
But does such appointment help the government to make the banks and financial institutions under its control dynamic and efficient? It can obviously help if the government chooses the right persons from amongst its party men or sympathizers or from outside. Except for a few cases in the recent past, the political governments did fail to make the right choices and imposed on the boards such persons who knew nothing about banking and other relevant issues. Thus, instead of making contributions to the efforts for improving the operations of the state-owned banks and financial institutions, at times, these directors create more problems for the banks while trying to interfere in management decisions, loan sanctioning and appointments and transfers of officials and employees.
What is more worrying is that a section of inefficient and corrupt officials and employees posing as active followers of the ruling party try to come closer to the politically -appointed directors and take undue advantage from the management of the banks.
One can here recall the situation in the banking sector in the late seventies and early eighties. The situation in the sector turned anarchic at that time when trade unions virtually controlled everything under political patronage. It was late President Justice Sattar who had brought the situation under control by axing jobs of several thousand errant bank employees in 1981.
Despite various reform measures undertaken in recent years, the state-owned banks are still not out of woods. Each of these banks has substantial amount of non-performing loans (NPLs) even after lots of rescheduling and segregation of the bad debt from the loan portfolio. The state-owned banks, which once dominated the banking sector with their major share in both deposits and credits, have been constantly losing ground to the private and foreign commercial banks that are better managed by qualified and competent professionals.
There is no denying that political interference, at least, for the first two decades of independence of the country, is partly responsible for much of the problems in the state-owned banks. Efforts have been taken since early 1990s under the financial sector reform programme (FSRP) and other measures to address those problems that have been eating into the vitals of these banks. But some of the ills are still persisting.
The quality of a section of directors of many private banks is nothing encouraging. However, these directors know their limitations and do not interfere in day-to-day management affairs. Moreover, being the stakeholders they are aware of the fact that their banks do need to be operated efficiently by the professional bankers to ensure a handsome return on their investments at the end of the year. But in the case of the state-owned banks, the directors do not have any stake. Hence, they do not take that much of interest in the financial performance of these banks.
Being pressed by the multilateral donors, the government has been trying to streamline the performance of the state-owned banks through corporatisation and appointment of high- salaried consultants to a few top positions of the banks, including those of chief executive officers (CEOs) under contractual arrangement. The teams of consultants, however, are yet to show any spectacular results.
To be honest, the finance ministry is, apparently, unwilling to give up its control over the state-owned banks. But it can very much maintain its control over these banks even after divesting 30 to 40 per cent stakes of these banks to the general investors, thus, making the corporatisation move meaningful. Induction of a few directors representing the general investors would, surely, bring about a major change in the management of these banks.
So, the government, instead of dumping useless party followers, should be true to its words in relation to making the boards of directors of the state-owned banks dynamic and efficient and choose right persons who have the ability of making positive contributions to the efforts for streamlining the state-owned banks.
The government has reconstituted the boards of three state-owned banks and the BASIC Bank late last week. And many have raised their eyebrows at the appointment of a few ruling party followers as directors to the boards.
According to newspaper reports, there could be more such appointments to the boards of these banks and other government-owned financial institutions during the current week.
Technically, the government has done nothing wrong by appointing the individuals of its choice to the boards of the banks under its control. But selection of a few names is bound to raise the question whether such appointments would help the boards concerned to become more effective and efficient.
Moreover, a few of the latest appointments run counter to a notification issued by the finance ministry in the second week of April last. The notification made special mention about the need for induction of an increased number of professionals into the boards of banks and financial institutions. One would wonder whether all the appointments made by the government last week represented the truly professional people. The finance ministry notification while talking about professionals did mention about, among others, economists, chartered accountants and persons having expertise in money market, economic management and monetary policy.
According to a report published in a leading Bengali daily, the finance ministry did not follow the rules concerned while seeking the opinion of the central bank on the persons it wanted to put on the boards of the state-owned banks. The ministry was supposed to send the detailed information about those individuals. But it sent only names, nothing else, to the Bangladesh Bank. Without such information it was difficult for the credit information bureau of the BB to know whether any individual is a bank loan defaulter or not. A bank loan defaulter cannot become a director of any bank, public or private.
Appointment of political elements or ruling party sympathizers to the boards of the state-owned banks and financial institutions is nothing new in this part of the world. It has happened during the rule of most political governments. However, some governments did put in their men on the boards without provoking much criticism while others did it in a carefree style without bothering much about who says what.
But does such appointment help the government to make the banks and financial institutions under its control dynamic and efficient? It can obviously help if the government chooses the right persons from amongst its party men or sympathizers or from outside. Except for a few cases in the recent past, the political governments did fail to make the right choices and imposed on the boards such persons who knew nothing about banking and other relevant issues. Thus, instead of making contributions to the efforts for improving the operations of the state-owned banks and financial institutions, at times, these directors create more problems for the banks while trying to interfere in management decisions, loan sanctioning and appointments and transfers of officials and employees.
What is more worrying is that a section of inefficient and corrupt officials and employees posing as active followers of the ruling party try to come closer to the politically -appointed directors and take undue advantage from the management of the banks.
One can here recall the situation in the banking sector in the late seventies and early eighties. The situation in the sector turned anarchic at that time when trade unions virtually controlled everything under political patronage. It was late President Justice Sattar who had brought the situation under control by axing jobs of several thousand errant bank employees in 1981.
Despite various reform measures undertaken in recent years, the state-owned banks are still not out of woods. Each of these banks has substantial amount of non-performing loans (NPLs) even after lots of rescheduling and segregation of the bad debt from the loan portfolio. The state-owned banks, which once dominated the banking sector with their major share in both deposits and credits, have been constantly losing ground to the private and foreign commercial banks that are better managed by qualified and competent professionals.
There is no denying that political interference, at least, for the first two decades of independence of the country, is partly responsible for much of the problems in the state-owned banks. Efforts have been taken since early 1990s under the financial sector reform programme (FSRP) and other measures to address those problems that have been eating into the vitals of these banks. But some of the ills are still persisting.
The quality of a section of directors of many private banks is nothing encouraging. However, these directors know their limitations and do not interfere in day-to-day management affairs. Moreover, being the stakeholders they are aware of the fact that their banks do need to be operated efficiently by the professional bankers to ensure a handsome return on their investments at the end of the year. But in the case of the state-owned banks, the directors do not have any stake. Hence, they do not take that much of interest in the financial performance of these banks.
Being pressed by the multilateral donors, the government has been trying to streamline the performance of the state-owned banks through corporatisation and appointment of high- salaried consultants to a few top positions of the banks, including those of chief executive officers (CEOs) under contractual arrangement. The teams of consultants, however, are yet to show any spectacular results.
To be honest, the finance ministry is, apparently, unwilling to give up its control over the state-owned banks. But it can very much maintain its control over these banks even after divesting 30 to 40 per cent stakes of these banks to the general investors, thus, making the corporatisation move meaningful. Induction of a few directors representing the general investors would, surely, bring about a major change in the management of these banks.
So, the government, instead of dumping useless party followers, should be true to its words in relation to making the boards of directors of the state-owned banks dynamic and efficient and choose right persons who have the ability of making positive contributions to the efforts for streamlining the state-owned banks.