THE continuous losses of State-Owned Banks (SOBs) prompted the government to consider privatising them all, expect one, said media report on Monday. Most State-Owned Banks are now sustaining on ..." /> Logo
21st-Mar-2017

Privatization of SOBs not solution to mismanagement

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THE continuous losses of State-Owned Banks (SOBs) prompted the government to consider privatising them all, expect one, said media report on Monday. Most State-Owned Banks are now sustaining on tax-payer-funded money. Finance Minister AMA Muhith discussed the government's thinking in presence of the Managing Directors of all seven State Owners Banks, Governor of Bangladesh Bank, and the Secretaries of Finance and Banking Divisions. They discussed the capital shortfall of five State-Run commercial banks and two State-Run specialised banks while the Finance Minister held the view that funding those banks from budgetary resources is slowing their recovery. Banks must operate on cost-benefit basis.

Last year, six State-Owned Banks posted operating profits of Tk 2,010 crore, down 37 percent from a year ago. After provisioning and tax payments, these banks registered a net loss of Tk 511 crore for the year, which was Tk 125 crore in 2015. Two other State-Owned Specialised banks -- Krishi Bank and Rajshahi Krishi Unnayan Bank -- counted Tk 418 crore in losses last year, against Tk 167 crore in 2015.

Privatising the State Banks has been a long-standing options and experts support the option saying banks must stay in business through competition. Last year, Mohammed Farashuddin, former central bank governor, and Sadiq Ahmed, former World Bank official called on the government to immediately privatise those banks and take drastic measures against public enterprises to stop them from bleeding the economy.

But privatization has mixed results. Revenues received from sale of public equities were modest (roughly 35% of the target of Rs. 78,300 crores were realised in the period 1991-92 to 2002-03) from the sale of public companies in India. In the UK too there have been mixed results. While privatization has improved the service quality of some services like water distribution, it has also resulted in tremendous job losses for specific sectors.

Privatisation failed to demonstrate that private companies are always more competent than State-Owned ones. It also failed to demonstrate that citizens would own shares. Rather the truth is that these banks will pass to the hands of wealthy and politically powerful people to give concentration of the national wealth to few hands. There is no guarantee that these banks will improve performance, rather capital flight may further grow in one hand and income gap between the rich and the poor will cause more socio-economic tension in the country.

So many believe that the solution is not in selling these banks to the rich, but improving the bank management free from political control. So long political leaders will influence loan sanctioning and their rescheduling, the situation will not improve. We must say that the government should prove its competence to run banks instead of handing them over to powerful syndicates.