The conundrum surrounding state-owned banks

The words 'mismanagement', 'scandals', 'scams' and lately 'trading of blames' have long been synonymous with the state-owned banks (SoBs). The phenomenon can well be traced to early seventies but reached menacing proportions in the eighties, especially during the regime of H.M Ershad who squandered bank money with carefree abandon to gain political mileage. He was thrown out of the pedestal but the pernicious culture stayed on. What we are now left with are mere hollowed skeletons of what we call state-owned banks (SoBs).
Regardless of what we call them, SoBs have become a permanent drag on the economy and a bane for the people. Beginning from 1991 when the serious illness of the SoBs was diagnosed under the financial sector reform programme, hundreds of thousands of taxpayers' taka are shelled out from the state coffer every few years to restore them to health. By the last count more than TK 90 billion (9,000 crore) has been paid by the government since 1991 to top up the capital shortfalls of the four mainstream SoBs. The sickness, however, continues with renewed intensity. The ordinary people who are made to pay higher taxes and ever increasing costs of utilities to provide life support to the SoBs do not readily understand the complexity of the banking system and the rationale for nourishing the terminally ill financial institutions. What would have happened if they did was articulated by Henry Ford, the famous American tycoon and pioneer of automobile industry. He said, "It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be revolution before tomorrow morning".
The latest prognosis does not look any better either. By June this year the non-performing loans (NPL) of the SoBs reached a staggering 23.23 per cent of their loan portfolio. It translates into something like Tk 300 billion (TK 30,000 crore). With that amount of money we could build the Padma Bridge without suffering the ignominy of innuendo and endless scrutiny of the World Bank that transcended the bounds of decency. Quoting Bangladesh Bank sources, a local daily newspaper says that during the last six years alone Janata Bank and Sonali Bank's NPLs have grown by 85 per cent and 65 per cent respectively during the last six years while those in Agrani Bank and Rupali Bank grew by 40 per cent and 17 per cent respectively.
Another yardstick for assessing the state of financial health and efficiency of management is profitability. According to the latest issue of Bangladesh Bank's monthly Economic Trends, the SoBs incurred net loss of TK 65.23 billion (TK 6,523 crore). The banks reportedly did better in 2013 due to the leeway provided by the central bank in respect of loan classification, provisioning and rescheduling of classified loans. Looking at the surge of classified loans in recent time amidst the scandals and scams, they are on course to brace for another round of heavy capital shortfalls.  
What does the government want to achieve by spoon feeding the SoBs sine die? They are losing grounds to the private sector banks almost on a daily basis. Starting with almost a virtual monopoly their share of deposits slipped to 26.6 per cent by the end of 2013 while their counterparts from the private sector notched up a whopping 62.44 per cent. With a galaxy of old and new private banks competing for business in a small market. It will not be long before the SoBs turn into a footnote in the field of financial intermediation.  
One myth that sustains the theory of usefulness of the SoBs is that they serve the rural communities through their extended outreach. In reality, the SoBs and the private sector banks are playing a negative role in the upcountry region by shifting financial resources from rural to urban communities. According to April-June 2013 issue of Bangladesh Bank's Scheduled Banks Statistics the SoBs collected deposits of Tk 514. 64 billion (51,464 crore) from the rural communities but lent only Tk 178.45 billion (TK. 17,845 crore) i.e. only about 35 per cent of the deposits. The remaining amount of TK. 333.16 billion (Tk 33, 316 crore)  was shifted to the cities especially Dhaka city for the benefits of people like Tanveer of the infamous Hall Mark. At the same time private sector banks also joined in the melee to scoop up Tk 293.69 billion (Tk 29, 369 crore) from the villages for the benefit of urban clients. We talk of social justice and financial inclusion but fail to notice the fissures that dry up the sources of livelihood of neglected millions languishing in abject poverty beyond the city's periphery.
The government is lately talking about reconstituting the Board of Directors of the SoBs with honest and wise men and women while Bangladesh Bank is seeking more power to stop haemorrhaging of public money. However sensible these suggestions are, there is not much that one can expect to gain without addressing the basic issue of restructuring the SoBs through denationalisation. It would be worth remembering that an experienced and veteran banker headed the Board of Directors of a SoB but the biggest heist of bank money took place under his nose. A renowned economist headed the Board of another SoB but by the time his tenure ended the NPL of the bank grew to a record 85 per cent, the highest of all the SoBs.
Millions of local taka and donors' dollars have been spent to address this issue but nothing tangible has come out of the endless exercises. This is not to suggest that the private sector is a paragon of honesty and efficiency but devolution of responsibility to the private hands will at least relieve the taxpayers from the onerous responsibility of feeding the white elephants. After all, we must remember that 50 million ultra-poor people of this land go to bed with empty or half empty stomach. While they groan under the excruciating pain of hunger we cannot afford the luxury of spending tons of money to serve the ego and benefits of the few.

The writer is a former central bank official.
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