One of the biggest challenges the country’s banking sector is going to face this year is restoring good governance and reducing corruption, said a senior official.
“Affected by large credit scams in 2013, the banks will now need to bring back discipline and governance. This is one of the biggest challenges for the sector in 2015,” said Bank and Financial Institutions Division Secretary M Aslam Alam.
He was talking to Dhaka Tribune in an interview at his office recently.
State-owned Sonali Bank and BASIC Bank were involved with the huge loan forgeries.
The secretary feared BASIC officials facing charges of assisting in the scams could be proved not guilty due to flawed and weak charge-sheet.
He said new management of the bank is also encountering tough resistance from the staff against the indictment.
M Aslam Alam, a second secretary in the Division since Awami League-led alliance assumed power in 2009, talked about financially troubled Sonali and BASIC banks, pending cases of the Division, MoU signed with state-run banks for good governance, automation of state-owned banking system, launching of a website, a separate pay scale for Bangladesh Bank and four state-owned commercial banks.
About the scams, he said it would take next 10 years time to recoup the loans given to the companies like Hall-Mark.
“We don’t have any magic to recover the credits in 2/3 days. A 10-year time will be required.”
The official said external audits by private firms on small amounts of loan default like Tk1 crore because of non-cooperation by BASIC staff.
“New management of BASIC is struggling to establish its full authority on the bank’s employees and it may take two years to have everything under its control,” he said.
The government provided Tk1,500 crore to Sonali Bank and BASIC Bank last week to meet their capital shortages.
Both the banks have a combined capital shortfall of about Tk4,000 crore as of last September, due mainly to their inefficient and corrupt mode of loan sanction and disbursement that resulted in huge stockpile of default loans.
“It is a big challenge for state-run banks to ease default loan situation. The government can issue directive to the boards of directors to lower the default loans, but it has no special plan as the central bank is looking into the matter.”
He said the government is thinking of use of video camera in the board meetings of the state banks, but stakeholders’ support is required to introduce the system.
About a separate pay scale for four state-run commercial banks, M Aslam Alam said Finance Division opposed such plan as the banks still need recapitalisation to survive.
He said the Finance Division also opposed a separate pay scale for the central bank as other government bodies may seek the same.
However, such pay scale proposals have received the banking division’s support.
“The state-owned commercial banks are now limited companies and they deserve a separate pay scale under the existing law. There are also separate pay scales for BASIC and BDBL,” the secretary said.
He said mid-level staff and officials raised voice against separate pay scale as they fear such scale can be based on performance of the staff.
Aslam said the separate pay scale should be implemented with earning profits of the banks.
About automation, he believed the loan forgeries could be reduced through implementing such a system.
Automation project will be completed in 2016, though the government is negotiating with the World Bank to bring the project under the “Financial Sector Reforms Project.”
About the Banking Division’s website, he said the Division launched its website last year, which published, for the first time, the name of a DMD of Rupali Bank for involvement with corruption.
“This is an effort to ensure transparency in the banking sector,” M Aslam Alam said.
About a special court for banking sector, he said they have already requested the law ministry to set up two separate benches of the court dedicated to resolve cases of banks and financial institutions.
The secretary said the Division would sign a MoU with state-owned banks and financial institutions to establish a proper commercial environment from the end of January this year to increase efficiency, accountability and dynamism.
“We will sign a MoU with all state-owned banks and financial institutions one by one to achieve some key performance indicators” he said.
“The Division will strictly monitor the key performance indicators of state banks and financial institutions at three-month intervals while the central bank will monitor financial activities.”
In 2007, the Division gave full financial freedom to boards of directors of state-owned banks and financial institutions, but they failed to maintain expected environment, he said.
“That is why the Division has to start monitoring activities of the boards.”
During the three months of monitoring, the Division and Bangladesh Bank will monitor the classified loans, capital adequacy, profit margin, return of assets, return of equity, credit against net assets, assets turnover ratio, growth of deposit and statement of credit growth.
He said the chairmen and managing directors of seven state-owned banks, Investment Corporation of Bangladesh and Sadharan Bima Corporation and Jiban Bima Corporation will sign MoU.
