The government has introduced an annual performance targets-oriented agreement with fourteen state-owned banks and financial institutions to make them accountable. On April 09, 2015, the secretary of the Banking Division under the ministry of finance caused signing of such an agreement with the chairmen and the managing directors of state-owned Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BASIC Bank, Bangladesh Development Bank Ltd., Krishi Bank, Rajshahi Krishi Unnayan Bank, Karmasangsthan Bank, Ansar-VDP Bank, Probashi Kallyan Bank, House Building Finance Corporation, Jiban Bima Corporation and Sadharan Bima Corporation. In the agreement, the banks were given various performance targets including reduction of default loans, cash recovery, profit and loan growth, lowering the number of loss-making branches and increasing the number of automated branches.
The state-owned commercial banks and financial institutions have been a subject of criticism over the decades. Their performance can now be compared with the banks and financial institutions in the private sector. The Bangladesh Bank, the central bank of the country, assesses the performance of the commercial banks periodically through CAMEL (Capital Asset, Management, Earning and Liquidity) rating. Seldom the position of state-owned commercial banks are found strong or satisfactory. However, some of the private sector commercial banks also show poor rating (the writer avoids naming such banks on moral ground).
Various studies and observations show why the state-owned commercial banks and financial institutions can not fare well. These institutions have to abide by the directives of the government. They have to provide loans to other non-financial state-owned organisations (corporations, autonomous bodies, semi-autonomous bodies, etc.). According to government statistics, 22 state-owned corporations and autonomous bodies owed loans to the tune of about Tk 340 billion until June 2014 to state-owned commercial banks. The largest amount of loans from the state-owned commercial banks went to Bangladesh Petroleum Corporation, Bangladesh Power Development Board, Bangladesh Chemical Industries Corporation, Bangladesh Sugar and Food Industries Corporation, Bangladesh Agriculture Development Corporation, Bangladesh Oil, Gas & Mineral Resources Corporation (BOGMRC), Bangladesh Water Development Board, Bangladesh Jute Mills Corporation, Bangladesh Steel and Engineering Corporation, Chittagong Port Authority, Bangladesh Textile Mills Corporation and Trading Corporation of Bangladesh. On the other hand, same nationalised entities like Bangladesh Chemical Industries Corporation, Bangladesh Textile Mills Corporation, Bangladesh Agriculture Development Corporation, Bangladesh Shipping Corporation, Bangladesh Small and Cottage Industries, Bangladesh Sugar and Food Industries Corporation and some other bodies had maximum classified loans to the state-owned banks in the FY 2013-14. Over last four decades, a huge amount of loans given to state-owned non-financial public enterprises by state-owned commercial banks was written off which, in turn, affected the very financial base of such banks and caused the drainage of public money.
Various special programmes are implemented by the government through state-owned banks and financial institutions. In many cases, these institutions suffer losses in implementing such special credit programmes. In recent times, a good move has been undertaken by the Bangladesh Bank for financial inclusion of disadvantaged classes of people by giving chance to open 10-taka deposit accounts with banks. The beneficiaries include farmers, freedom fighters, social security benefit recipients, cyclone-distressed people, workers and hardcore poor. About fifteen million of such accounts were opened until June 2014. No charge or fees are taken for these accounts. Though extremely benevolent, the banks are losing income as there is no compensation for their time, labour and services. The Bangladesh Bank should give such service charges.
An important aspect is the management of state-owned banks and financial institutions. The board of directors of these institutions are formed by the government. The chairmen and the directors of the boards are appointed by the government. Here, political considerations reign supreme. Many loan cases are politically influenced resulting in defaulting, classified and written-off loans. A good number of recent bank scams have originated from such a system.
A recent report in the Financial Express (April 04, 2015) suggests how deep the default culture has gone. It has been reported that Tk 426 billion of bank money remained stuck in more than forty thousand money suits. The share of four state-owned commercial banks -- Sonali, Janata, Agrani and Rupali -- in this stuck-up money is Tk 206 billion and that of four specialised banks -- Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Development Bank Ltd. and BASIC Bank -- is Tk 18.79 billion. This episode also suggests how much the state-owned banks are suffering from their capital or liquidity shortage.
No doubt, the performance targets-oriented agreement between the government and the state-owned banks, and financial institutions is a good initiative. The arrangement could be made with the Bangladesh Bank as it concluded MoUs with these banks earlier. The Bangladesh Bank, as a regulatory body, should monitor and supervise these banks and financial institutions. Moreover, the government has responsibility for ill health of state-owned banks and financial institutions. First of all, chairmen and directors of the boards of state-owned banks and financial institutions should be appointed from a pool of resource persons to be selected by an appropriate body. Secondly, government should not compel the state-owned banks to provide loans to state-owned non-financial enterprises which are likely to be defaulted. Thirdly, legal arrangements should be made so that loan granting officials and the board of directors can be made liable for defaulting loans. This requires that no persuation (Tadbir) can be made for awarding loan. The performance and accountability of state-owned banks and financial institutions may then improve. The final option is to denationalise most of these entities.
The writer is an economist
and columnist. Chowdhuryjafar@ymail.com
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