Streamlining the state-owned banks

Private commercial banks (PCBS) were allowed to start business in Bangladesh in 1983, during the military regime of Lt. Gen. H M Ershad. The Arab Bangladesh Bank, the IFIC Bank, the Islami Bank Bangladesh Ltd and the National Bank Ltd were the four pioneers in private sector banking in the country. They are termed as the first generation banks in the banking sector. The move was welcome by many but the state-owned banks (SoCBs) started feeling the pinch of competition from these banks. The arrival of these banks led to the gradual deterioration of the SoCBs and their downward pace accelerated as more PCBs were given licenses.

From 1991 to 2017, many new PCBs came into operation after getting government nods mostly on political consideration. These banks helped creating new set of entrepreneurs.  New PCBs heated up the price in stock market.

The four SoCBs have constantly been getting favours from the government. These banks, however, created bankers who left them to join PCBs and performed with professional excellence in the private sector. While they were in SoCBs they could not excel well due to either regulated regime or government intervention.

Due to this growth of professional bankers, the private sector grew at a much faster pace compared to the SoCBs. On the other hand, SoCBs' growth was stalled due to bureaucracy and lack of commercial aptitude. In those banks, inefficiency of employees was often not dealt with disciplinary actions which, in turn, led to further worsening of situation of the SoCBs.

After the arrival of the PCBs, government sector banks were left in shambles due to absence of professionals who moved to private sector at higher and attractive packages. Those who remained in SoCBs were mostly reluctant to take new challenges.

To rescue the SoCBs, the central bank took measures to recruit new generation bankers for them.

From 2015, the SoCBs have been offering competitive remuneration packages for their employees. There was a 100 per cent rise in the pay scales and officers at the level of AGMs and above are getting car loans, and extra allowances which are not relating to performance. This incentive policy resembled that of the PCBs but the operational efficacy in SoCBs did not match that of the PCBs. These incentives should have been linked with performances. The branches of SoCBs were mostly opened on political consideration without any proper feasibility study and later many branches became liabilities for the banks.

Less than 10 per cent of SoCB branches earn profit from portfolio loans.

In SoCBs a large amount of money is paid to all employees as incentive bonuses on the basis of basic pay without performance appraisal. The PCBs pay packs are performance-based while SoCBs' are not. Seniority rather than performance is the primary basis for incentives in SoCBs.

Absence of accountability has led to increasing non-performing loans (NPLs). The delinquent borrowers avail the easiest resort, that is, go for legal battle to obtain verdicts in favour of them. The SoCBs' law enforcement is deplorably poor due to absence of transparency and accountability. Their management is also not free of cronyism and nepotism. The central bank does not have much control on SoCBs. All these factors have made them uncompetitive and non-professional.

The SoCBs render various kinds of free services to the government. Again cost of funds is not cushioned to these banks by the government when these have obligatory requirements to invest in treasury bills, bonds, etc.

The cost of fund in SoCBS is around 8.0 per cent mainly due to rising NPL while their lending rate is 5.0 per cent or even less. These have been in practice since long. Despite this the SoCBs are subjected to criticism when they receive funds from the government. About 20 per cent of their loan portfolio remains as bad loan and 30 per cent of the portfolio is disbursed for various low-income projects.

The four SoCBs have one branch each in most upazilas. Unfortunately, 90 per cent of these branches are loss-making. It is now high time to gradually downsize the branch network.

The government is the owner and hence it can expect cheaper services from SoCBs, but providing free services to the government in lieu of getting fresh allocation of funds from the national budget is not a professional approach.

The government should at least pay some amount as charges at a reduced rate for getting any services from the SoCBs instead of injecting fund to them to meet their capital adequacy.

The government should instruct all the SoCBs to replenish new capital to meet capital inadequacies.

Having been in protected environment, SoCBs' bankers have developed personal relationship with big defaulters and the SoCB managements of SoCBs do not treat the defaulters professionally. These lead to the non-payment of loans by the defaulters.

Those who retire from SoCBs at the level of general manager (GM) and above should be restricted from joining the PCBs as managing directors (MDs) or deputy managing directors (DMDs) after retirement to ensure transparency in loan management.

 Masih Malik Chowdhury is a former ICAB president and founder Partner of Masih Muhith Haque & Co Chartered Accountants.

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