SOBs turn sick fast22 September 2014 Kazi Zahidul Hasan
The financial health of public sector banks is deteriorating fast following recent spate of loan scandals and soaring default loans in their overall credit portfolios, sources said.
They said, mired by the poor governance, these state-owned banks-Sonali, Janata, Agrani, Rupali and BASIC-have already plunged into grave crisis and there is apprehension that they might collapse soon unless the government takes a bailout plan for them.
"The government has appointed inefficient directors in the banks board under political consideration. This directors sanctioned a large amount of loans to a vested group violating banking norms," former governor of the central bank Dr Salehuddin Ahmed told The New Nation on Sunday. He added: The board of directors of such banks dictated the loan sanctioned process, violated rules and resorted to various malpractices to help the vested group.
"As the group comes to loot money under the cover of taking loans from the public banks, they also resorted to fraudulence practice. Even some members of the top management of the banks got themselves entangled in sanctioning loans in favour of many fake companies misusing their power," he observed. He also said that these illegal practices made the banks virtual 'pauper'. They are now facing difficulties in giving fresh loans to the genuine borrowers.
The former BB governor further said, the recent spate of scandals in public sector banks involving nearly about Tk 10,000 has raised the concerns about governance in the public sector banks, and without improving their governance with deployment of efficient and honest board members, the drainage of tax-payers money may not be stopped.
"So, time has come to infuse dynamism in the top management of the public banks axing political appointed directors who failed to run them. The government should revamp board of governors of all public banks immediately to prevent the banks from further financial vulnerability," he opined.
Besides, steps should be taken to bring the corrupt board members, managers and errant borrowers to for preventing the recurrence of the loan scams. The regulators should also come forward to intensify their monitoring and oversight against such corrupt practices for the sake of the banking industry and long-term economic development of the country. Finance minister AMA Muhith also admitted that picking up directors in the state-owned banks under political consideration was wrong choice for the government and such practice led to fraudulent incidents and financial scams in public banks.
"There had been mistakes on the government part in selecting people for the boards of state-owned banks," Muhith told the reporters after a function held recently at his Ministry office.
"We had many mistakes in our choice," he said, adding, "Some fraudulent incidents took place because of politically-appointed people in the boards of the banks."
According to a latest data of Bangladesh Bank (BB), the aggregate capital shortfall of Sonali, Janata, Agrani and Rupali stood at Tk 1,441 crore in the second quarter (April-June) of this calendar year while it was only Tk 240 crore in the previous quarter (January-March).
Besides, the default loans of Sonali, Agrani Bank, Janata Bank and Rupali Bank stood at Tk 19,719 crore during April-June this year, up from Tk 18,689 crore in the first quarter of the year. The capital shortfall of scam-hit BASIC Bank stood at Tk 1,675 crore as on June, this year, whereas, it was only Tk 647 crore in December last, showed the BB data.
Among the public banks, the financial condition of Sonali and BASIC goes to the worst level as a group of errant borrowers embezzled over Tk 7,000 crore from the two government controlled banks, sources in the central bank said.
Regarding the capital shortfall of the public banks, the former BB governor said, the amount would keep on rising if no punitive and corrective measures are taken soon.
"The state-owned banks account for the major portion of the unrecovered loans undermining the performance of the banking sector," a senior BB official told The New Nation yesterday. He added that BB in a recent meeting with the top management of the state-owned commercial banks has asked to intensify their loan recovery drive and reduce the amount of default loans to improve their financial health.
When asked, he said, "We appraised the Finance Ministry of the scale of irregularities in the banks concerned from time to time. But, it remained reluctant to take any actions.
Referring the loan scam of BASIC Bank, he said, BB earlier advised the Ministry to dissolve the board of the Bank as the central bank found involvement of the directors of the bank in loan scandals involving over Tk 4,500 crore.
"Corrupt and non-professional members in the boards of public sector banks are the root cause of the rampant irregularities and corruption and it later led to poor financial health of the banks," he said, adding, "The Ministry should bring an immediate overhaul in the banks board to bring discipline in the public banks."