That the state-owned banks (SoBs), commercial or otherwise, are in a bad shape, has, once again, come to the fore through the Financial Stability Report (FSR)-2012, released by the Bangladesh Bank (BB) last Sunday. The SoBs have been in the news headlines for quite sometime for a number of developments, including loan scams, erosion of business and rise in the volume of non-performing loans (NPLs). The latest FSR has highlighted the state of the NPLs in the country's banking sector and come out with findings that conforms, by and large, to the popular perception about the SoBs. Though a few in number now, the SoBs are still much ahead of their private sector counterparts in the matter of financial irregularities and poor fund management.
The FSR has revealed that five SoBs had their share at 63 per cent of the aggregate amount of NPLs in the country's banking system until December 31 last. It has blamed lack of efficiency in fund management, obligatory lending to some 'social and economic priority' sectors and lending under political pressure for the rise in the size of the NPLs with the public sector banks. But in a clear deviation from the past trends, a couple of private commercial banks and an identical number of foreign banks this time have been included in the 10 worst performing banks in 2012, in terms of their share of NPLs in their respective total outstanding loans.
There is no denying that the banks and also the non-banking financial institutions (NBFIs) are now in a difficult patch for a number of factors and their profitability has gone down during the last couple of years. The collapse of the stock market at the fag end of 2010 after a bull-run for nearly two years is a major factor, no doubt. Besides, a depressed investment scenario and substantial decline in imports have also largely contributed to a lacklustre business environment for banks. But the problems that the SoBs have been encountering are different from those troubling the private or foreign banks. The public sector banks have their built-in and systemic deficiencies. Sporadic efforts were undertaken to remove those, at least, partially, through reform measures.
Some improvements were noticed following the reform actions, particularly those initiated at the insistence of the multilateral donors in the late 1980s when Mr M Syeduzzaman was the finance minister. But the same could not be sustained later for lack of interest at the policymakers' level and political interference in management as well as loan decisions. The happenings inside the SoBs do largely bear out the fact that the government is an ineffective evaluator of performance of the top management of such banks. Rather some incompetent persons sitting on the boards of directors under political considerations, have fouled up matters there, more often than not. All these actions have brought about some disastrous results for the banks that now require injection of a substantial amount of funds as their capital.
The central bank, however, is alive to the problem of NPLs in the banking sector and recommended some necessary actions to reduce NPLs and infuse dynamism into the banking industry. Hopefully, its suggestions aimed at improving the situation, would be duly adhered to by the management of private banks and the government that owns the SoBs. The FSR-2012 has dealt with issues involving other players of the financial sector. But how things would proceed with other actors in the sector will largely depend on the well-being of the banks, the kingpins of the financial sector.
