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The central bank has advised the Financial Institutions Division (FID) of the Ministry of Finance to take actions against the loss-incurring state-owned commercial banks (SoCBs) that have been disbursing incentive bonus to their employees every year.
The central bank in a recent letter to the FID pointed out the irregularities and requested the latter to take measures against the banks which were providing such bonus despite incurring losses.
Some leading SoCBs have been paying up to three incentive bonuses while others one in violation of the existing rules.
The central bank had prepared the 'incentive bonus rules' for the SoCBs back in December 2014 at the request of the MoF.
However, the unified rules are not being followed by the SoCBs even more than six years after their formulation.
According to the rules, the employees should get incentive bonus based on the net profit to be made by the respective institutions, and that they should not get the same if banks fail to make profit.
The rules also suggested fixing the incentive bonus based on a bank's net profit, only after making necessary provision against the classified loans and other soured assets, and when the liquidity position would remain at a satisfactory level.
According to statistics as on 31 December 2019, out of six SoCBs, five incurred a cumulative loss of Tk 192.63 billion in that year. Only the Bangladesh Development Bank Ltd (BDBL) had registered profit without taking the provisioning waiver.
The Sonali Bank, Agrani Bank, Janata Bank and Rupali Bank disbursed Tk 4.373 billion to their employees in incentive bonuses despite incurring a cumulative loss of Tk 185 billion in 2019.
However, providing incentive bonus to employees by Basic Bank remained suspended since 2013 following unearthing of a massive loan scam in it.
The incentive bonus also remained suspended in state-owned specialised banks - Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank - since fiscal year 2018-19 as the banks were incurring losses continuously.
Statistics up to 31 December 2020 showed that of the six SoCBs, only Sonali Bank and BDBL could earn net profit.
Agrani Bank and Rupali Bank also showed net profit in the last year while keeping a provisioning shortfall of Tk 13.19 billion and Tk 8.22 billion respectively.
On the other hand, Janata Bank incurred a loss of Tk 50.54 billion that year while Basic Bank Tk 3.66 billion.
In the year 2020, five SoCBs, except BDBL had a cumulative shortfall of Tk 137.05 billion.
Until December 2020, the volume of classified loans in the banking sector stood at Tk 882.83 billion. Almost half of the amount belongs to the six SoCBs.
The central bank letter mentioned that the state-owned banks had been incurring losses continuously before their conversion into corporations in 2007 and the employees were then given 'ex-gratia' for enticing them to perform well.
After turning into corporations, the state-owned banks begun making profit and the employees were provided with incentive to encourage them working even better.
"Despite incurring losses, the banks are still paying incentive bonus," the letter mentioned.
Contacted, Sonali Bank managing director Ataur Rahman Prodhan told the FE that the banks should follow the "incentive bonus rules" prepared by the central back.
"Incentive bonus should be given only if banks earn profit," he said, adding that unless a bank makes profit, employees should not be given incentive, rather can be given ex-gratia on special consideration.
Mr Prodhan argued that sometimes the central bank gives waiver on provisioning due to logical reasons thus the banks can show profit without keeping necessary provisions.
Former central bank governor Dr Salehuddin Ahmed told the FE that incentive bonus should be performance-based. "Everyone of an organisation can be given incentive bonus after making profit."
"Globally, even the top executives of large companies are given shares when the companies make profit," he said, adding that providing incentive bonus without making profit is "irrational".
However, a loss-making company also can give incentives bonus to some individuals who showed excellent performance.
Agrani Bank managing director Mohammad Shams-Ul Islam said the central bank grants provisioning waiver to public sector banks, taking into consideration the services they provide to the government free of charges.
"Had the government given us the charges, our profit may have increased and provisioning shortfall may not have created. As a result, we may have earned a huge net profit in real sense," he added.
Mr Islam said that they provide free services like student stipends, allowances for old age people and widows, interest waiver to flood affected farmers, and some others.
"We provide incentive bonus based on net profit," he said, adding that his bank provides three bonuses a year.
Janata Bank managing director Abdus Salam Azad and Rupali Bank managing director Obayed Ullah Al Masud could not be reached for comments, despite several attempts.