The government is finding it difficult to run the state-owned commercial banks (SoCBs). These banks are facing capital shortage. Loan default has increased to an alarming level and many loans have been written off. On top of these, there was huge misappropriation of funds.
Financial health of these banks deteriorated during the last six years. During this time, there was a big financial scandal in Sonali Bank. In many cases, businessmen chose Janata, Agrani and Rupali banks for swindling. BASIC Bank is also involved in scandals. The World Bank in a report towards the end of 2013 stated that the banking sector started declining since 2009.
During the last six years, loan default of Janata Bank increased by 85 per cent, Sonali 65 per cent, Agrani 40 per cent and Rupali 17 per cent. Total loan default of these four banks stood at Tk 190 billion. In addition, these banks wrote off loans worth Tk 150 billion. During this period, the amount misappropriated in BASIC and four other banks has been estimated at more than Tk 110 billion. Current loan default of these banks is also alarming, said a Bangladesh Bank report.
All governments have run these banks from the beginning on the basis of party and political considerations. The banks were used for giving benefit to party leaders and workers and supporters. The government-appointed boards of directors and sanctioning loans on political consideration resulted in a sorry state of affairs of the five state-owned banks.
BASIC Bank was one of the sound banks six years ago. This was an example of a government-run good bank.
In the beginning of '90s, these banks were given capital infusion to the extent of Tk 50 billion to survive. At that time, money was given as bonds. Recently, Sonali, Janata, Agrani and Rupali banks were given cash capital infusion of Tk 41 billion. This money was given as budget provision.
The government has been giving capital to these banks from 1991. But there is no end to this phenomenon. Former adviser Akbar Ali Khan said that political appointments in bank boards never produced a positive outcome. Problems of these banks lay in their administration. He advised the government to privatise these banks.
Former banker Ibrahim Khaled has also suggested that since the government is not in a position to run banks, these banks may be privatised by keeping only Sonali Bank in government control.
Ten years ago, an initiative was taken to privatise three banks. A project was taken up at a cost of Tk 390 million. Under the previous caretaker government, the state-owned banks were converted into companies. But nothing happened thereafter.
The World Bank and the Department for International Development (DFID) of the United Kingdom started a bank modernisation programme in 2004. Donors' view was that there was no need for government-controlled banks. Because of treasury function, Sonali should remain under government control. Rupali Bank would be privatised first. Janata and Agrani would be prepared for privatisation.
Three different initiatives were taken in this regard. A group of consultants was deployed in Sonali and Janata. A new management team was appointed for Agrani. Another group of consultants was given the responsibility of selling the bank. The consultants drew Tk 1,300 million as their fees.
No decision of the project was implemented even after expenditure of so much money. With the change in government, the decisions were also changed. Instead of privatisation, the government reorganised the management boards. Party people were appointed. The Banking Division was created to oversee their operations. Thereafter, banks started declining. The government failed to appoint right people in the boards.
In India, the Syndicate Bank gave loan to a party beyond limit in exchange of bribe. The Central Bureau of Investigation (CBI) arrested six persons, including the chairman and the managing director of the bank. No such action was taken in the case of the defaulting banks in our country.
In an interview with a leading newspaper, the Finance Minister admitted that he has failed in the case of state-owned commercial banks. It was not proper to appoint people in the boards of banks on the basis of party affiliation. Once in 2009 and again in 2012, the government appointed 70 persons on political consideration. Chairmen of banks were appointed from among pro-government teachers of Dhaka University. Seven/eight persons were appointed for each of the boards of Bangladesh Development Bank, Rajshahi Agricultural Development Bank, Bangladesh Krishi Bank, BASIC Bank and Ansar-VDP Bank. Most of them were Awami League, Jubo League and Chattra League leaders.
The minister has said he would now turn away from this practice. Former bureaucrats and bankers will now be appointed. The government cannot normally appoint chairmen of Sonali, Agrani and Janata Banks directly. Chairmen will be appointed through the boards. The minister, however, said that as owners of the banks, they can appoint chairmen. In the case of state-owned banks, a summary has been sent to the Prime Minister from the Finance Minister for appointing chairmen of boards. This practice is followed for a long time.
It is learnt from the Banking Division that the government policy regarding appointment of chairmen and directors of boards of state-owned banks is not yet clear. Privatisation of these banks appears to be the best solution. Unfortunately, the government does not always opt for the best solution.
The writer is an economist and columnist. jamaluddinsyed23@yahoo.com.au