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COLUMN

Reforming state-owned banks

MAMUN RASHID
I was not at all surprised to see state-owned Sonali Bank being adjudged as the best banking 'brand' in Bangladesh by Brand Forum. Who could win the hearts of millions of Bangladeshis as a 'neighbourhood bank' other than a large public sector bank? I have seen my eighty-year-old father, who retired from government service, and seen the trust he deposes on Sonali Bank, which holds all his pension funds, not his son's very illustrious multinational bank or grandson's very progressive private sector bank. This is all because of the trust and confidence the public sector banks still enjoy from the common people of this country.
With 'market-driven' philosophy getting a hold on the entire economy for the past three decades, the public-sector banks have been increasingly losing their market share. The private and foreign commercial banks having employed efficient and skilled resources are now driving the country's banking sector.
Mismanagement, political interference, dicey investment and recruitment of incompetent and more than required' manpower are major factors that have largely contributed to the current state of the public sector banks. These banks, on the one hand, lost their business share to more aggressive and efficient private sector colleagues and, on the other, are carrying a legacy of classified loans accumulated over the years.
Development partners, particularly the World Bank, have been extending assistance in various forms to the government for streamlining the public sector banks, including privatisation. They pressed for the privatisation of Rupali Bank along with putting up corporate management in other three state-owned banks. The Rupali Bank privatisation bid has failed due to inept handling by the
Privatisation Commission as well as nasty intervention from the political regime. However, the implementation of the schemes for strengthening three other state-owned banks, which have been corporatised recently, is in progress with the support from the World Bank (WB). These banks have got their new CEOs, appointed on contract at market price. The government is supposed to review the performances of these CEOs on six-month basis, in strengthening the fundamentals of the corporatised banks.
One of the major objectives of the government's bank modernisation project is to get rid of redundant manpower and thereby reduce their operating expenses. The scheme has been partially implemented in Rupali Bank. Now, the second largest public sector bank, Janata Bank, is planning to shred large number of jobs. The WB would provide the required funds under a designated project.
Trimming the state-owned banks has long been overdue because of their ever-declining shares in both deposits and lending for nearly two and a half decades. These banks have been footing the salary cheques of a large number of redundant employees and officials, notwithstanding the fact that a good number of their rural branches have been closed down. It is high time for these banks to part with the excess and inefficient manpower and recruit competent people to stay in the competition with their private sector friends.
The ongoing financial market turmoil in the USA and Europe, which is now hurting other economies too, might have taught the importance of having the state-owned banks to bring in the much needed balance between the market and the state. The strong proponents of free-market economy are now taking stakes in private sector banks worth billions of dollars. They seemed to
have little option other than saving the collapsing banks for the sake of keeping their own economies afloat. The government in Bangladesh should also bring in necessary reforms in the state-owned banks to strengthen their performance and make them 'fit to run'.
We have seen what the Chinese government banks did in the past - almost a similar story like what has been going on in the public sector in Bangladesh --inefficiency, capital shortage, burden of huge employees etc. But they have real -ised and identified the downsides of these public sector banks and taken a pragmatic view in terms of doing the right tilings. They have invited strategic investors into these banks, recapitalised them and in due course taken them to bourses and which in turn helped the domestic savings move in more attractive and useful sectors. This also upheld the philosophy of sharing the wealth
among the public. This injection of capital also gave the institutions a set ofboard members, infusion of new blood and a set of thoughts. Needless to mention that, all these are the vital elements for the revival of any institution that is keen to implement the positive modes of change. I believe readers would agree that positive change means positive outcome, which is extremely necessary at this critical juncture. We have missed many an opportunity, but let us not miss out on this great opportunity when there is a great deal of financial meltdown happening all over the world.
The other day, I was asking Janata Bank Managing Director Aminur Rahman about his top three challenges, to which he replied saying, 1) Automation, 2) Skilled Human Resources, and 3) Non-performing Loans. Who could be so right than a veteran banker and a fellow MBA (inci-
dentally all top three NCB MDs hold Masters in Business Administration from IBA, Dhaka University) like Mr Rahman? Automation is the key to a better customer service delivery' platform and an enhanced assets-liability management. One could not reemphasise the importance of skilled manpower to ensure better customer service, enriched credit due diligence, efficient funds management and lead the banking sector to next growth trajectory. If the NCBs cannot address their non-performing loans, their capital will remain under stress, as will their expansion ability and profitability. They need to rationalise classified loans, improve their internal cash flow and thereby divert liquidity to the hungry and growth sectors of the economy and remain as friends in need'.
The writer, a banker and economic analyst, can be reached at mamun1960@gmail com