Banking is a vibrant sector of
economy in Bangladesh.
With rapid economic growth in the country, banks have expanded their branch network
and business operations. Now banking services are available far beyond Upazilla
and even Union levels.
During recent years, banks have
diversified their services through innovation. Mobile banking is one such
innovative service which has become popular in a short period of time. This has
opened the way of operating agent banking. Have we identified new risks and
developed new measures?
Banks have rapidly transcended to
automated operations from manual operations. Most of the rural branches are
computerized. Some of the banks are completely on-line. Mechanization has taken
the banks to a new age with new opportunities as well as new challenges. We are
learning at a cost. Have we analyzed mechanization risks for taking remedial
measures?
Achievements are not free from
challenges. In the process, banks have faced many challenges and succeeded to
overcome those. It is, however, a continuous process. New challenges emerge.
Old challenges also appear with new dimensions.
Expansion of banking diversification
of services and automation of operations have triggered new problems and
challenges for the banking organizations. Problems are cultural, managerial,
technological as well as systemic. Banks are handling the problems in their own
way. We may try to identify some problems which are, by and large, sectoral in
nature.
Loan default continues to be the
number one problem of our banking sector. It is not a new problem. It is
persisting for more than three decades. After promulgation of Martial Law in
1975 and later on during the process of forming political party, banks were
used for distribution of favour. From 1978 onwards, banks were increasingly
burdened with staggering amount of classified loans. In 1986, World Bank
alarmed the government and proposed for reform initiative. Finally, Financial Sector
Reform Project (FSRP) started in 1990 for large scale reforms and continued for
5 years. Classified loan of Sonali Bank
was 40% according to local audit report. World Bank study revealed that actual
amount of default loan was 52%. Project ended with good results. But banks
failed to keep it up. From 2000 onwards, deterioration started alarmingly. To
clean the books of accounts, government enacted a law facilitating the banks to
write off and transfer huge amount of bad loan from the balance sheet. Thus the
banks became ‘clean’ in an ‘unclean’ manner. After the cleaning operation,
banks’ classified loans should have remained in a low scale, say below 3%. But most
of the banks failed to manage credit portfolio effectively, resulting
accumulation of classified loans exceeding ten percent in some banks.
It is believed that ethical standard
has gone down in many banks and so is the standard of professionalism.
Organizational culture has changed. Dishonesty and indiscipline have eroded
professionalism. Such distortion is different and distinct from inefficiency
and lack of knowledge. Inefficiency is responsible for low productivity, while dishonesty
and indiscipline are responsible for destruction of the organization. In recent
years, a number of banking crimes came up in the media. It was a matter of
concern for depositors in particular and common people in general. Sonali
Banks’ Hallmark scandal involved around
Tk. 4000 crore. Basic Bank swindling involved around Tk. 4000 crore. Bismillah
group swindled around Tk. 500 crore. Scandals involving Tk. 100 crore or less
are many in number. Sonali and Basic Bank are owned by the government. Chairman,
Directors and Managing Directors are appointed by the government. They can not
remain unaccountable for such big scandal. But the Chairmen and Directors were
not questioned by the Authorities. Dishonesty
virus has paralyzed the private banking sector as well. Bangladesh Bank has
deputed ‘observer’ to five banks. It is a matter of concern. Can ‘observers’
change the scenario? Probably some banks deserve an ‘Administrator’ instead of
‘observer’ from the Central bank. Dishonesty is highly cancerous. Nothing short
of surgery can cure it. Concerned citizens are raising an unanswered question,
‘who will bell the cat?’
Concentration of loans to small
number of ‘groups’ is a new challenge for the flourishing banking sector. Banks
are engaged in financial intermediation. They will collect deposits from the
people and invest to good entrepreneurs who will pay back the loan with
interest. There is big business. There are millions of small business as well.
From the point of view of ‘risk’, banks should better put their eggs in as many
baskets as possible, so that any mishap in one basket may not jeopardize the
financial position of the bank. Other
baskets will ensure safety. From ethical point of view, banks are ‘trustees’ of
people’s fund. Hence social justice is demanded. Small depositors are many in
number. Hence banks should lend to large number of small entrepreneurs for
social justice. Close scrutiny reveals that most of the banks have concentrated
loans to a few hands. In many cases, banks have gone out of the way to dish out
loans far beyond needs and capacity of borrowers. This has pushed the banks to fatal risks. Banks
have also betrayed social justice. Private Banks are more exposed to such
position, compared to government owned banks. Is it because of owner management
collusion?
There exists large scale allegation
of interfering with professionals by the owners of banks. Owners are using
stick and carrot policy for hiring and firing senior executives. It is alleged
that owners allure the executives with very high salary, disproportionate with
salary of other executives of the same bank, for the purpose of using the CEO
to serve owners undue interest. Such executives are fired if they do not fall
in line. Such banks are not managed rationally by the professionals. They are
arbitrarily ruled by brute owners. Quite a few examples are on record. Media
has brought specific incidents for notice of people as well as government. On
the Carrot side, some CEOs receive salary three to five times higher than that
of their immediate next executives. On the stick side, many CEOs have been
forced out of job. During past six months, at least four CEOs have been eased
out under the guise of ‘resignation’. This is indeed a danger signal for the
banking organizations. Ownership characteristics of banks fundamentally differs
from that of other commercial organizations. Paid up capital of banks is
insignificant compared to huge amount of peoples deposits which form the bank’s
‘working capital’. Banks earn profit by using deposits. Paid up capital does not
play significant role in earning profit. But entire amount of profit is
distributed among owners i.e. share holders as dividend, as is done in case of
other commercial organizations which earn mainly on owners capital. This is unfair
from ethical point of view as well as risky for depositors’ security. To face
this challenge, ‘independent directors’ have been introduced in the board of
the bank to safeguard interest of depositors. Again, the owners select and
appoint independent directors who serve owners’ interest. This betrays the
purpose. Considering depositors role in activating and promoting business and
share holders’ insignificant contribution to deployable fund of banks, we may
ponder over the problem and bring reform in restructuring the Board of the
bank. 50% of the board members may be elected by the share holders to look after
their interest. Rest 50% Board members may be identified, selected and
appointed by a special commission (or central bank?) to safeguard the interests
of the depositors. Independent directors must not be dependent on share holder
directors. In the face of gross interference, delinquency and greed of share
holders, similar reform deserves consideration not only to protect depositors,
but also to promote economy of the country.
Posts
0 Comments