The IMF has set new time-bound conditions for the government to reform the nationalised commercial banks (NCBs) for releasing the next tranche of loan under the Poverty Reduction and Growth Facility, scheduled for December.

As part of the ongoing reforms to the NCBs, bank-by-bank strategies were finalised in consultation with the IMF and the World Bank last month, which the government has adopted, according to a second review report on the three-year PRGF loan.

Under the strategies, three NCBs — Rupali, Agrani and Janata which together account for 25 percent of the market share — would be brought to the point of divestment in full or in part in phases from 2004 to 2006.

Restrictions on foreign ownership would be eased as part of the plan for divestment of the banks. The government intends to allow qualified foreign investors to own shares in a privatised bank in excess of the statutory ceiling of 10 percent on a case by case basis to encourage participation in the competitive bidding process.

The reforms to Rupali Bank, including appointment of a financial adviser to the bank and bringing it to the point of divestment recommended by the adviser, have to be complete by this year.

Agrani and Janata banks are to be corporatised by 2005 and 2006 and brought to the point of divestment where they can attract strategic partners to bid for substantial shareholding with full management control. Agrani will have new management team led by a Bangladeshi chief executive officer by the end of the month.

As for Sonali Bank, the largest NCB with a 17 percent market share, it is to be corporatised and brought to the point where a minority shareholding can be divested over the medium term. The IMF is against an early partial divestment of Sonali considering Sonali's central role in the provision of treasury functions and essential banking services for the rural sector.

The government has been asked to appoint a chief executive officer to Sonali Bank and reconstitute its board of directors on the basis of 'fit and proper test' by next month.

"The reforms are on-going (in line with the IMF conditions) and these will be continued, " a high official at the finance ministry told The Daily Star yesterday, asked if the government would be able to complete the reforms in time.

The board of directors of the NCBs would be reconstituted to have only directors qualified as 'fit and proper'

under the Bangladesh Bank guidelines and at least two board members would have to have recognised financial or banking experience.

The IMF has stressed the need for greater autonomy of the NCBs in human resource policy. It calls for a review of the policies on branch rationalisation and human resource relating to hiring, promoting, firing, staff compensation and instituting voluntary retirement schemes (VRS). The NCBs should also be given maximum autonomy in making decisions.

The new private owners or strategic investors of the banks, once divested, would need to have significant banking expertise, management capabilities and a credible track record.

They would also have to be prepared to put forward a significant amount of their own capital, as a condition of sale The government would not entertain bids that require regulatory forbearance for minimum capital adequacy.