Bangladesh Institute of Bank Management (BIBM) is organising the Annual Banking Conference 2017 on November 26-27. The conference will focus on banking, finance and economy, in both national and international context. The Dhaka Tribune’s Shariful Islam speaks with BIBM Director General Dr Toufic Ahmad Choudhury about the current situation of the banking sector in Bangladesh.
What is the theme of this year’s Annual Banking Conference?
We have been organising the conference since 2012. Our goal is to build a platform where experts, academics and researchers from all over the world can interact, exchange ideas, share knowledge, experience and research in banking and related fields.
We have called for papers and received 120 abstracts from both home and abroad. So far, the evaluation committee has already selected 20 from them.
We have selected two separate themes for the two-day conference. The theme for the first day is “Macro banking environment” and “Digital financial services for financial inclusion” for the second day.
Why have you selected the two themes for this year?
Every year, we conduct surveys on seven major functional areas of the banking industry, also called banking review series. The surveys are focused on bank credit, trade, treasury, internal control, human resource, Islamic banking and IT operations.
Basically, the findings from our surveys help us to select the themes and we will be sharing them at the conference.
What about Bangladesh’s banking sector considering the global context?
If you consider the implementation of the global standard of the Basel framework, we adopted Basel III implementation scheme long ago. Basel III not only relates to capital management, but also liquidity management. We have started implementing it and expect it to be up and running by 2019.
If banks want to adapt with Basel III, the capital requirement must be increased, as is required by the “capital conservation buffer” condition in it.
Can Bangladeshi banks fulfil the capital requirement of Basel III?
I think most private banks can fulfil the requirements. State-owned banks might face problems, since they are now running short of the required capital. Although, if the government injects capital from government exchequer, that’s an entirely different matter.
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In our country, it is common for entrepreneurs to become complacent after opening a bank. The usual idea is that the regulators will take care of it. Is there any solution to this?
Everyone is recommending mergers and acquisitions as a means to solve this issue. But mergers and acquisitions are only a part of the total banking resolution policy, which we also call the exit policy.
Ideally, if someone qualifies for a licence, the regulators should give him/her a licence. It is not the regulators’ responsibility to make sure the bank thrives. If a bank performs poorly and is heading for closure, the regulator has to close them naturally. The contrary is happening in our country. Bangladesh Bank has taken up the responsibility to aid them, which enables the owners of those banks to avoid their responsibilities.
This is precisely why a banking resolution policy is needed. When banks fail, they should simply close their operations and prioritize their depositors.
The government is going to enact the latest amendment of the Bank Company Act without considering such policy recommendations. This will effectively allow increasing the tenure of private banks’ board of directors to nine years from six years, and allowing four members of a family to sit on a board instead of two. What will be the impact of this move on the banking sector?
The policy-makers are going to implement the changes in the new act arguing that banks belong to their owners. Their argument is based on the need for the owners to be present on the board and being able to run for long periods of time. As in other countries, directors often hold their position for years too.
We want to refute this by arguing that it is the depositors who really own the banks. If you look at the capital ratio, you will find that the capital is only 10% of the total risk-weighted asset. If we compare it with total liability (including deposit), it is around 3-4% of liability. So, if someone who is contributing a fund of 3-4% and controls over 100%, it is definitely discriminatory.
In other countries, directors of a bank are appointed based on their experience and their capacity to manage a bank, thus allowing them to efficiently run said bank. In such a case, it makes sense to extend a director’s post for years. But, in our country this is not the case, Board of Directors (BoDs) don’t usually have a track record of experience to justify the extension of their tenure.
There is no justification for enacting the amended bank company law which includes such provisions.
On the other hand, the BoDs are formed with the aim to formulate policy-guidelines, supervising business activities of the bank efficiently and ensuring good governance in bank management, as it is essential to earn and maintain confidence of the depositors, who are the prime financiers.
In our country, the BoDs interfere in management issues, such as disbursing bad loans, recruiting employees or other illicit-money-related issues, which is unacceptable elsewhere.
There is a rising trend of market monopoly in Bangladeshi banking sector. It is not unheard of in Bangladesh that a single business group gets control of eight banks. What are your views in this matter?
There is a collective move toward capital concentration, which means leaving the fate of the country’s economy to a small number of very large organizations. This governance system and economic policy is contrary to the economic philosophy that Bangabandhu Sheikh Mujibur Rahman prescribed to or even promoted. Such a system can only trigger greater income inequality across the country.
If one business group controls the capital of eight banks, it will hinder our inclusive growth.
When there is a change of ownership or management by unethical means, what are some of the consequences that follow?
There is an issue called hostile takeover. Numerous examples can be found in many others countries as well. Whatever problems that may arise, can be resolved through strict monitoring and supervision from the central bank.
The financial scam in our banking sector is occurring one after another. What are the reasons behind it?
This culture of impunity in our country is the main reason behind such scams. If perpetrators were punished and made an example of, it would deter others from committing those same crimes. Sadly, that is not the case. The reason behind this culture and the bad shape of banking sector is the lack of good governance. Many believe the main problem in the banking sector is Non-Performing Loans (NPLs) or default loans but I feel the real issue is bad governance.
Do you feel we have enough people and expertise in the banking sector?
Most banks today are facing a skilled manpower problem. This crisis could easily be mitigated by recruiting degree-holders beyond the business discipline and training them sufficiently.
The lack of expertise in the banking sector, which used to be a problem for state-owned banks, has now spread into privately run commercial banks. Bank directors often recruit their own people as entry-level officers, most of whom are not qualified.
There is also a problem at the top-level management: there is a lack of sufficient expertise. We used to have 8-10 banks in the past. Today we have 57 banks and not enough expertise to fill the new MD/DMD positions. This has created a vacuum, which is exactly why banks need to have manpower planning.
How do we overcome the overall crisis in the banking sector?
If you asked me for a single solution, I’d say the focus needs to shift to improving governance, specifically internal governance.
External governance needs to be maintained by the central bank. Internal governance needs to be maintained through effective internal control, by the banks themselves.
If a bank does not maintain internal governance, the central bank can do nothing with outside monitoring. It’s a symbiotic relationship that depends heavily on good governance.
When governance improves it strengthens the central bank. All this should be done without any outside interference.
It is also important to formulate laws. But merely creating laws is not good enough. You have to be able to properly implement them.