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Wednesday | 15 January 2025 | Epaper

Crisis in the state-owned commercial banks

Not to behead for having a headache

Published : Sunday, 7 May, 2017 at 12:00 AM  Count : 293
Haradhan Ganguly
A top level council held its meeting in the middle of the last month at the secretariat headed by Finance Minister AMA Muhith, forewarns that unending worsening performances of the public banks could destabilize the entire financial sector under their spillover adverse impacts.
It is said, the state-owned commercial banks (SOCBs) and specialized banks have been incurring financial losses on account of the high incidence of non-performing loans (NPLs). The panel also noted that the banks' returns on assets and equities squeezed into negative territories and could worsen further if appropriate measures not be taken right now.
NPLs is becoming the intrinsic practice of SOCBs and its spillover impacts would create opinion in favour of giving them back to private sectors. The present state of SOCBs is giving the opportunity to neo-liberalists to demand returning SOCBs to private sectors. Already it has been started.
Some market fundamentalist economists are trying to brand SOCBs the abyss or bottomless basket. Slumber, inertia and political biases of Bangladesh Bank and financial institutions department of the finance ministry are contributing to a great extent. Thanks to the council for agreeing on the realities of the prevailing state of SOCBs.
Our stand is clear. We are for a vivid, undistorted and dynamic market economy where the existence of efficiently performing and dynamic and political influence free state-owned banks is not irrelevant. Rather they are complementary. It is theoretically proved. So it does not mean we will cut our heads when they grow headache.
Experts think that the Finance Ministry has failed to stop influences coming from politics and appoint efficient people to deal with the state-owned banks. It is found out that the return on equities (ROE) -- a measure of profitability that calculates how much money of profit a company generates with each taka of shareholders' equity -- fell negative to over 6.0 per cent in the state-owned commercial banks as of December 2016. And this is nearly 7.0 per cent for government-owned specialized banks. The returns on assets (ROA) also fell by 0.16 per cent into the negative zones in commercial banks. On the other hand, the pictures of all private banks foreign banks appeared positive.
The council noticed the state-owned banks bearing loads of gross NPLs for long, which results in erosion of their profitability. As revealed, the average gross NPLs in case of the state-owned commercial banks are over 25 per cent while it is over 26 per cent for the government specialized banks.
Due to increase in NPLs, SOCBs are facing yet another capital deficit which in turn created additional fiscal pressure for the government. TK 1800 crore was doled out in FY 2016 for the recapitalization of SOCBs which is public money.
Why do people allow cutting their pockets for spoon feeding the critical SOCBs for which they are not responsible? Besides NPLs, the heists of the Central Banks foreign exchange reserve and followed by a series of ATM scams are raising the question of governance in the banking sector.
Experts smell political considerations and influences both in the disbursement and loan recovery process. This is the common screenplay practiced for long irrespective of governments and party politics. Banks' chairmen and CEO are being appointed by the governments. Junior officers cannot sanction big loans. For it, there are board members and top management officials. Their efficiency is judged by the extent of their loyalty to bureaucrats, not by their role and efficiency in screening out technical and binding issues related to loan sanctioning. If it was so happened, scams like Hall Mark, Bismillah group or BASIC Bank scandal would not have been created.
To come out of this impasse of NPLs' culture, SOCBs' autonomy and freedom must be ensured and a strong structure of accountability is to be erected. Provision of overseeing by Bangladesh Bank is demanding to be made more efficient. Staffs entrusted to the job of supervision must be brought under constant screening.
Mind that big guns are more prone to defaulting. So the political commitment in this regard is to be seen herewith. The entire network is to be framed in such a way that a defaulter of a bank could not go to other banks for further loan and constant defaulting would be dealt with law tantamount to criminal offence.
For a viable market economy, there needs the existence of commanding heights and the nationalized banks of Bangladesh are fulfilling those jobs. Beheading is not the solution for having a headache.
When this writing came to an end, we got the news that State owned banks are contemplating to move to realize 1 per cent charge against various services they provide to government and officials. This can be a good source of income for them. We support this with a good ovation.

The writer is Secretary of the United Nations Association of Bangladesh (UNAB)






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