Strategic plan for the banking sector
Saturday, 25 July 2009
The governor of Bangladesh Bank (BB) informed the media in a recent function that the central bank is preparing a five-year long plan with the obvious intent of adding to improvements in the banking sector. This information should be well received because banking sector reforms even on an intermittent basis can be a very positive input towards maintaining the health of the financial system of a country. The banking institutions may grumble about such attempts on the part of the central bank as unnecessary intervention in their affairs. But the collapse of some major banks in the developed countries in recent times points to the fact that banks are better off with monitoring and corrective actions than without them.
Banks in Bangladesh were systematically sought to be upgraded through what were defined as the financial sector reforms programmes (FSRPs) for the last two decades. The state of the local banks have, thus, improved significantly in this period. The ones which were identified as 'troubled banks' by the BB have been able to come out of this classification through their own efforts as well as activities guided by the banking sector regulator.
Thus, the strategic plan of the BB to be introduced from early next year ought not to cause any undue concern and should be essentially seen as a follow-up to the FSRPs. The banks stand a good chance of becoming even stronger and safer by cooperating with the central bank in this regard. An important component of BB's strategic plan would be enhancing its own capabilities. The regulator of the banking system itself is in need of attaining more capacities to do its job with greater efficiency. It suffers presently from a dearth of specialist manpower to run its various departments. But the availability of such manpower and their effective deployment will be important for the BB to carry out its intended supervisory and other functions in line with the strategic plan. The BB will have to acquire talented and suitable manpower to liaison with the other banks to help the latter with their various needs of capacity building.
However, the central bank must not go into an overdrive trying to impose its will too far in the policy areas of the individual banks. For example, the BB even under the immediate past governor has been unwavering in its stand that the banks in some areas are at fault for not doing enough . Specially, the lending rates are scorned and the lowering of the rates is always emphasized. But the central bank also needs to have some empathy for the rightful profit motive of the banks. The banks are not charitable institutions ; the banks are driven singularly, more or less, by the urge to maximize profits in any setting. Angelic or missionary role from the banks is an utopian dream. Therefore, what would be practical and useful, is an even handed role of the banks in which they would be combining their appetite for profits with safe and socially responsible banking practices. The strategic plan for the banking sector should seek to nudge the banks towards adopting such a role. The central bank can achieve a great deal by showing the management of the banks how they can go about in reducing or limiting their operating costs that would in turn help them to compensate for any lowering of the interest rate on lending as per the central bank's suggestion.
Banks in Bangladesh were systematically sought to be upgraded through what were defined as the financial sector reforms programmes (FSRPs) for the last two decades. The state of the local banks have, thus, improved significantly in this period. The ones which were identified as 'troubled banks' by the BB have been able to come out of this classification through their own efforts as well as activities guided by the banking sector regulator.
Thus, the strategic plan of the BB to be introduced from early next year ought not to cause any undue concern and should be essentially seen as a follow-up to the FSRPs. The banks stand a good chance of becoming even stronger and safer by cooperating with the central bank in this regard. An important component of BB's strategic plan would be enhancing its own capabilities. The regulator of the banking system itself is in need of attaining more capacities to do its job with greater efficiency. It suffers presently from a dearth of specialist manpower to run its various departments. But the availability of such manpower and their effective deployment will be important for the BB to carry out its intended supervisory and other functions in line with the strategic plan. The BB will have to acquire talented and suitable manpower to liaison with the other banks to help the latter with their various needs of capacity building.
However, the central bank must not go into an overdrive trying to impose its will too far in the policy areas of the individual banks. For example, the BB even under the immediate past governor has been unwavering in its stand that the banks in some areas are at fault for not doing enough . Specially, the lending rates are scorned and the lowering of the rates is always emphasized. But the central bank also needs to have some empathy for the rightful profit motive of the banks. The banks are not charitable institutions ; the banks are driven singularly, more or less, by the urge to maximize profits in any setting. Angelic or missionary role from the banks is an utopian dream. Therefore, what would be practical and useful, is an even handed role of the banks in which they would be combining their appetite for profits with safe and socially responsible banking practices. The strategic plan for the banking sector should seek to nudge the banks towards adopting such a role. The central bank can achieve a great deal by showing the management of the banks how they can go about in reducing or limiting their operating costs that would in turn help them to compensate for any lowering of the interest rate on lending as per the central bank's suggestion.