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Now a govt report says control of state banks must go to BB

Reiaul Karim Byron and Md Fazlur Rahman
***On the government's failure to rein in bad loans, Muhith says: It is really bad performance. I would seek advice from you***
A government report suggested the control of state-run banks should be handed to the central bank to arrest their rising bad loans and reduce scope for scams.
“A number of steps have been taken to improve banking supervision but further steps are needed, including assigning the full supervision responsibility of public banks to Bangladesh Bank," said the mid-term review of the government's Sixth Five Year Plan.
The planning ministry has prepared the evaluation report. "This is a serious weakness in the management of public banks and needs urgent policy attention,” it said.
The report also called for corporatising the public banks and instituting a system of performance-based management and board of directors.
Senior government planners and officials and independent analysts met at the auditorium of the National Economic Council in the capital yesterday to discuss the progress of
the five-year development plan.
Rising non-performing loans or default loans at state banks dominated the discussion.
Shamsul Alam, member of general economics division of the planning commission, who presented a summary of the review report at the meeting, said effective measures must be taken to reduce NPLs.
Finance Minister AMA Muhith also expressed frustration over the rising
bad loans. On the government’s failure to rein in such loans, the minister said: "It is really bad performance. I would seek advice from you."
“One of the reasons behind the NPL is that many loans that are given should not be given. The appraisal procedure should be strengthened as it is the main reason behind the high NPL."
Mustafizur Rahman, executive director of Centre for Policy Dialogue, said the NPL has gone above 10 percent of the total outstanding loans although the rate is below 3-4 percent in comparable countries and 2 percentin India.
The lending rates are high because of the high NPL, which also acts as a deterrent to attracting investment, he said.
The recent rise in bad loans has been caused by a number of scams such as Hall-Mark scandal involving Sonali Bank and irregular lending practices at BASIC Bank.
Soon after coming to power in 2009, the government appointed directors at public banks on political consideration.
These appointments also acted as a key factor behind the scams. The central bank also raised the issue with the government a number of times before the scams took place
The International Monetary Fund had earlier asked the government to hand over the full control of board and management of public banks to the central bank.
Planning Minister AHM Mustafa Kamal, who chaired the meeting, also suggested the same He even called for merger of the state banks into one bankortheirprivatisation.
BB Governor Atiur Rahman said bad loans went up by 2 percentage points to about 10 percent as the banking sector has gone for international standards.
"After the Hall-Mark scam, we have enhanced our supervision. As a result, no scam has taken place since then, ” he said.
The review report said the sharp deterioration of the NPL situation in public banks is a recent development.
"During the first year of the Plan implementation, there was an impressive improvement in the NPL ratio of the entire banking sector, including public banks. The performance of public banks has nosedived since December 2011."
"It is a culmination of well-known forgeries, such as the Hall-Mark scam involving the Sonali Bank, as well as other corrupt and inappropriate lending practices in public banks," the report said.