The finance minister has admitted that political appointments to the boards of state-owned banks has been one of the main reasons behind their poor performance.
His candour in acknowledging that past political appointments have ‘’backfired,’’ should be welcomed.
Admitting a problem is the first step forward in trying to fix an issue.
Some 25 chairmen and directors have been appointed to the boards of just four loss-making state-owned banks Sonali, Janata, Agrani, and BASIC, in the last five years. Analysts highlight the Bismillah and Hallmark scams and the more recent loan frauds at BASIC Bank, as key illustrations of the way in which political influence and corruption have undermined the capital base and viability of state run banks.
The Bangladesh Bank has repeatedly had to step in to investigate fraud and to prop up losses to capital caused by the lack of effective corporate governance within state-owned banks.
It is discouraging that the government is not acting on the logic of the finance minister’s remarks. Instead, it is budgeting to spend Tk5,000 crore ($625 million) to bail out state-owned banks in the coming year.
By allowing lending restrictions to be quickly lifted from three fraud-hit branches of BASIC Bank, the government’s actions suggest it is not serious about fixing the systemic flaws in state banks.
Piecemeal reforms have been shown not to work. Privatisation is the most effective way available to reduce political interference and empower management to root out corruption.
As the custodian of taxpayers’ money, the government should divest itself of loss-making state banks, not support business as usual.