The government has identified 21 reasons for the deterioration of financial conditions of the state-owned commercial Banks (SOCBs) over the last couple of years.
Of the 21, the board of directors of the state-owned banks, who are entrusted with the task of monitoring their banks’ risk to assets and liabilities, are not performing their prime duty.
Besides, they hardly contribute to any policy formulation process for easing the liquidity risk of their respective banks.
The financial condition of the state-owned banks, specially Sonali and BASIC, are sliding due to the biggest Hallmark scam of Tk3,500 crore and Tk4,500 crore irregularities in BASIC by its former chairman Abdul Hye Bacchu, said an official of the Bank and Financial Institutions Division (BFID).
The BFID and Bangladesh Bank have recently identified the sources of irregularities and possible corruption threat in the banking sector after evaluating their probe reports over the last seven years. Later, a report styled “Asset quality and liquidity risk management of banks” was placed before Finance Minister AMA Muhith for his directives.
The finance minister, has, however, asked the authorities concerned to scrutinise the findings.
An official dealing with asset quality and liquidity risk management under the ministry said the main focus will be on measuring the strength of SOCBs’ performance and financial position and to increase their operational independence to safeguard the banking system and minimise fiscal risks.
The state-owned commercial banks’ capital fell by around 9% in June and stood at Tk9,250 crore mainly due to a rise in default loans.
State-owned specialised banks, except Bangladesh Development Bank, had no capital at the end of June, rather they had negative capital, which rose by around Tk600 crore in three months to stand at Tk4,338 crore.
According to central bank statistics, the capital position deteriorated mainly in Sonali, Rupali, BASIC, Bangladesh Krishi and Rajshahi Krishi Unnayan Banks.
Regarding asset quality, Bangladesh Bank has traced a huge loan amount in the accounts book’s without any proper addresses.
The report also said the management of the state-owned banks provide a huge sum of loan to the clients without any analysis on the financial risk of the bank in the last the couple of years.
Management of the state-owned banks did not follow any comprehensive credit policy, which was approved by the board of directors of the bank.
In many cases, management of the state bank’s gave cash to the new clients under temporary overdraft when they got loans. The loan proposals are being approved and loan payback time has also been extended without seeing loan defaulters business experiences.
The board of directors is approving the loan proposals ignoring the negative opinions by the head office credit committee and the CIB report as well.
The management of the state-owned bank do not pay any heed to the credit policy prepared in consultation with Bangladesh Bank.
The management of the banks are re-scheduling loan along with the additional dues without any transaction with the bank. They are not also complying with the central bank directives on classified and non-classified loans.
In case of liquidity risk management, the state-owned banks have no effective liquidity contingency plan.
