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It was a surreal experience and disconcerting to, the few months of work that I did as the managing director of a specialised bank in the public sector. Soon after joining I was visited by groups of employees, mostly clerks and peons, who belonged to as many as five collective bargaining agents (CBA). Though one was elected all of them occupied rooms in the head office of the bank and asserted equal right to represent their members. It did not take long for me to realise that they perceived their role not simply as bargaining agents (CBA) but also to dictate terms to administration regarding posting, transfer and promotions of the staff. They also felt free to exert pressure on management in certain cases of sanctioning loans. I was told that this extraordinary situation was not unique to the specialised bank but prevailed in all commercial banks whose head offices were in Motijheel. Their indiscipline and arrogance was tolerated by management because of their close affiliation with political parties, particularly the one in power. That was my first exposure to political interference in action in public sector banks and it made me aghast. As the misdemeanour of the CBAs increased in intensity and frequency I decided to seek transfer from the bank. During the few months that I spent as a managing director I also had insight into the manner in which corruption is resorted to by some unscrupulous officers of the bank almost as a matter of routine by sanctioning loans without due diligence and condoning malfeasance on the part of dishonest clients.
My unhappy experience as a `banker' at the top level dates back to the late Eighties. Going through newspaper reports about the state of affairs of the financial sector in the country, particularly those relating to the state-owned banks (SoBs) I find that matters have changed little since the Eighties. Politicisation of SoBs are continuing unabated, though it has graduated from the level of CBAs to the board of directors. Much of the malaise, including corruption, is alleged to be the outcome of this politicised governance in the SoBs, in varying degrees. The private sector banks, which numbered 58 (fifty eight) until recently, are no white lilies, we are told, riddled as they are with gross irregularities and gross malpractice. The banking sector as a whole is now in a dire strait because of poor governance that has snowballed over the years because of polarisation of SoBs and gross irregularities in the private sectors bank.
GROWING BURDEN OF NPLS: The elephant in the room for all the banks is the incidence of non-performing loans (NPL) under which most of the banks are now straining hard to keep above water. It was not a sudden development, the seeds were sown long ago when politicisation began in SoBs and absence of due diligence in sanctioning loans became common in private-run commercial banks. It needs no emphasis that the former exacerbates the latter practice or lack of practice. Perusal of national newspapers in recent weeks reveal the enormity of the problem created by the growing burden of NPLs in the banks. It has not assumed the proportion of crisis but the threat to the health of the banks and the stability of the financial sectors is only palpable.
Newspapers have given close attention to the affairs prevalent in the financial sector, particularly the state of the commercial banks because of their crucial role in the functioning of the economy. The growing burden of NPLs has been signalled by the media with red flag ever since it emerged as a serious problem, calling for urgent measures to stem the tide. Of late, the alarm bell sounded by newspapers has become more strident and frequent warning that the problem may snowball into a crisis unless arrested with urgency. Like the rhinoceros in Ionesco's absurd drama, NPLs has become enormous in size and is growing at an alarming rate. The following update gives an idea about the extent to which the menace of NPL has engulfed the banking sector and is about to keep it at bay.
According to a contemporary English daily (February 27) default loans at banks went up by a hefty 26.38 per cent or Tk 196.98 billion (19698 crore) last year, the highest rise in seven years, 'exposing the precarious conditions of the banking sector'. The news item said: poor lending practices, lack of corporate governance and the government's interference in banks were the main reasons behind the rise of toxic loans in recent times'.
According to Bangladesh Bank source quoted by the newspaper the amount of non-performing loans (NPL) stood at Tk 939.11 billion (93911 crore) at the end of 2018, up from Tk 743.03 billion (74303 crore) a year ago. The NPLs now account for 10.30 per cent of the banking sector's total loans, up from 9.30 per cent in 2017.
A former Deputy Governor of the Bangladesh Bank has said, 'the dire state of affairs has emerged from irregularities occurring in the last seven to eight years. He pointed out that the large amount of loans had turned bad long ago but many lenders concealed it by rescheduling the debts over and over again. At one stage, he said, even the rescheduling facility offered by the central bank got exhausted, pushing NPLs higher last year. As one who was an insider in the banking sector (both commercial and central) and being knowledgeable he has asserted that both public sector and private-run banks have repeatedly offered loans to the unqualified borrowers. According to him some directors of private banks have also pushed banks to sanction loans in dubious cases. However, among the banks, the SoBs are facing the worst situation because of repeated government intervention, he said.
CHAIRMAN AND MEMBERS OF THE BOARD OF DIRECTORS: The practice of appointing chairman and members of the board of directors by the government has by now become quite old. In almost all cases these functionaries of the board have been found to be lacking any background in banking or expertise of any sort. Their appointments have patently been made on political consideration as a gesture of patronage for support to the party in power. Naturally, in return for this favour they are expected to do the bidding of the authorities appointing them and most of them seem to have obliged with equanimity. No chairman or member appointed to the board in this manner is on record giving dissenting opinion or having resigned on principle. The sitting allowance of chairman and directors is hefty and there are other attractions, it is said. Even the head of the central bank has been appointed from former civil servants or academicians under different governments on political consideration since long. Having no previous background in banking and lacking special expertise they cannot be said to have been very successful in exercising oversight in the banking sector or in formulating effective monetary policy.
PRIVATE SECTOR BANKS: According to news item in a Bengali daily (March 10) as many as nine banks of the fourth generation had a total of Tk 38.24 billion (3824 crore) as NPLs in 2018 which was Tk 11.50 billion (1150 crore) in December, 2017. In other words, the amount of NPLs of these nine new commercial banks rose by 232 per cent and by an amount of Tk 26.74 billion (2674 crore). Among the new nine banks in the private sector, the Farmers Bank has now been re-named Padma Bank, as if the change in name will wash away the irregularities committed in the past. Till December, 2018 the total outstanding NPLs of Farmers Bank amounted to Tk 3.71 billion (371 crore) which is 57 per cent of the total loan disbursed by it.
Private sector banks were expected to be more efficient and run more prudently, being free from government interference. But the founding directors of many private sector banks have been found to have sanctioned loans to borrowers on considerations other than financial viability of their projects. Therefore, political interference is not the only cause for the ailing banking sector. Unscrupulous directors of private sector banks have also contributed to the accumulated mess in no small measure. Lack of adequate oversight by the central bank has aggravated the situation further.
In view of the disappointing performance of the private sector banks it was very surprising when Bangladesh Bank announced the decision to approve another 3 (three) commercial banks in the private sector. The sponsors of these banks having political background makes it obvious that political considerations acted behind the decision. A question has been raised as to whether the economy has grown so big overnight that 58 (fifty eight) existing commercial bank are not enough to cater to the needs of investors and business people. Banks rely on savings as deposits from the public to advance loans to borrowers. It has been asked by many whether the saving-GDP (gross domestic product) ratio has seen exponential growth justifying new banks. In the same vein it has been queried whether the investment-GDP ratio has leapfrogged recently exceeding the lending capacity of the existing banks. It is not known whether or to what extent these macro economic and financial issues were taken into consideration by the central bank before approving the 3 (three) private commercial banks. Political considerations playing prime role, these matters were side-stepped in all probability. Raising the paid-up capital from Tk 40 million to 50 million (4.0 to 5.0 crore) for the new banks hardly guarantees their healthy performance while in operation as long as the overall situation of poor governance caused by politicisation and lack of adequate oversight by the central bank prevails.
The importance of political will and the role of politics in strengthening banks were highlighted recently by the World Bank's new country director for India. In a speech given at the Institute of Banking Management he said: ‘Give me an ethical parliament and I will give you an ethical banking system'. It is obvious that he used 'parliament' as a proxy for 'government' in order to be politically correct. But financial experts, academicians and the print media perceiving the danger has called the spade a spade. They are no Cassandras or Jeremia spouting alarm as a phobia but speaking sense. Their voices of reason and counsel of wisdom should be listened to by the power that be. The banking sector being at bay, it cannot be 'business as usual'.