Banks do business with the depositors' money, but some banks, especially state-owned commercial banks (SoCBs), do not do so in Bangladesh. The state owned commercial banks love to give credit, but shy away from recovering the same. For them, it seems as though credit business is a one way traffic, they only give, but do not bring back. As a result, these banks are now sunk in bad loans up to their necks; they lost a substantial portion of their capitals to the classified loans. When they lose capital while doing business with other people's money that also means that they are living on other peoples' money, not on the profit they are supposed to earn through credit business. It need not be reiterated that these banks are sitting on mountains of bad loans. So, it is understandable what a mess they have created with the ever increasing bad loans?
Basic economic logic says that in such a situation the business of banking should be closed down. But that is not happening with the SoCBs, because there is the Uncle Sam at the corner to fill up their lost capital. Uncle Sam is none but the government of Bangladesh which owns the SoCBs. That means, the government does not mind running a losing business! But the people who bankroll the government by paying taxes have reasons to take things differently. They do not want that their money to be used to make up the capital loss of the SoCBs.
They express their discontent in every possible way except coming out on the streets. Taking to streets to oppose the use of tax payers' money for recapitalisation of banks' capital shortfall never had happened in this country, or so to say, in other countries also. In Bangladesh, the people protest the use of their money in seminars, television talk shows and through the representatives in the law making body. Occasionally, they write in the print media too. But that did not stop the government from recapitalising the SoCBs. The government, it seems, is bent on filling up the holes without plugging them from the bottom.
Every year the government provides the SoCBs with fresh capital worth billions of taka. But at the end of the year, the SoCBs again approach the government for additional funds. Sometimes, the government attaches some conditions before giving out the capital sought. But no conditions set out either by the government or the regulator the Bangladesh Bank can prevent them from dishing away depositors' money in the name of doing business with credit.
The economy has surpassed all past records in terms of bad loans. Much has been said about the bad loans of these banks, and the finance minister himself did express his utter frustration in the way things were turning from bad to worse over time.
The Bangladesh Bank is the regulator for the banking sector but unfortunately, as things stand now, it is not a full regulator for the SoCBs. A part of the regulation is exercised by the Ministry of Finance. Appointment of the MDs and the members of the management boards are done by the Ministry of Finance. The Bangladesh Bank can scrutinise and give opinion only in those appointments, but it is not empowered to remove the top executives in SoCBs. Taking advantage of the situation or lax regulation, top management in these banks at times become reckless in managing the portfolios.
The government lately brought some changes in the top management of the SoCBs, but that didn't help improve their financial health. Since the MDs or the members of the boards know they are not to be questioned for what they do, they take the liberty of dealing too generously with their chosen clients. These clients know they will never be pressed to repay those loans. Many people in Bangladesh became fabulously rich simply by taking loans from the SoCBs and staying away from repayment.
Chances are more than slim that these non-performing SoCBs will perform anytime soon. The root cause of their non-performance lies in the very nature of ownership. So long as the government owns them, they will never perform. The best option, we think, is to sell them, at least partly, preferably through stock market. No new permutation and combination in the management of the state-owned banks will bring any change. So long they receive cheap capital from the government, they will go on doing what they did in the past.
The writer is Professor of Economics University of Dhaka. firstname.lastname@example.org
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