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State banks must come under central bank governance: WB

Star Business Report
The World Bank yesterday recommended the government delegate the control of state-backed banks to the central bank for better supervision.
Supervision of the banking seaor is shared between the central bank and the banking and financial institution division under the finance ministry.
Bangladesh Bank regulates private banks while the banking division looks after the eight state-run banks, some of which have been plagued by several financial scams in recent times.
That is probably not a good way to regulate the banking sector, "said Johannes
Zutt, countrydirectoroftheWB.
"It is probably better to have that responsibility and authority domiciled within an entity that has the capacity, the people and the mandate to get the work done."
"And most countries in the world put the responsibility on the central bank.”
The country head of the global lender spoke to a group of reporters from Bangladesh Development Journalists Forum at his office in Dhaka.
Zutt also said the anti-poverty lender would like to see a strong firewall between the management of banks and the government's ability to
influence the management.
"The stronger the firewall is, typically, the better the quality of bank management you would get," he said, adding that qualified people with appropriate experience should be appointed as senior managers in the banks through a transparent process and without any undue interference.
Zutt praised the country's achievements on economic and social fronts during his presentation.
Bangladesh's achievement in human development since its independence is well beyond a reasonable person could have expected, he said.
The WB would continue to focus on Bangladesh as about 47 million Bangladeshis still live in poverty and 26 million of those in extreme poverty.
"It is going to be very hard for the world to meet the targets that the WB will likely to see on the poverty side without Bangladesh improving its performance in poverty reduction."
Zutt said the country has done a good job in accelerating economic growth that helped achieve human development outcomes that benefit the poor. "That is truly a remarkable achievement."
On the millennium development goals, he said it is likely that Bangladesh would achieve a number of those goals and would do better than most countries at a similar level of development. "This is a very strong and positive story for Bangladesh, which I think we always need to remember."
The development worker said the country is trending in the right direction, but it is not trending as strongly in the right direction as it could.
"Bangladesh has done well. But other countries have done even better. The country has done well in some areas, but there is a lot of room for improvement."
He also called for raising GDP growth to 9 percent to 10 percent as the impacts of lower level of growth is clear on a majority of the people.
Countries that have good governance and are addressing key bottlenecks to growth in an effective way, year overyear, can grow, he added.
Bangladesh is the largest recipient of the
WB's low-cost fund, accounting for roughly 10 percent of credit going to the developing nations from the multilateral lender.
The country will get more than $5 billion in development assistance in the next three years, including the current fiscal year.
At present, the WB has a commitment of $6.5 billion for 31 projects in Bangladesh, and roughly half would go to infrastructure in the areas of power, port, education and health.
Zutt also said both economic and political stability is important for businesses to invest, expand and create more jobs in order to reduce poverty.
He urged the government to stand by the private sector, so it can succeed.
“The government needs to do everything it can to help the private sector to succeed, with the exception of impeding competition. And this requires a change in mindset often. "
"The private sector and the government are actually on the same side when it comes to reducing poverty. They should be working together," he said.
"If you want to reduce poverty, you need to create employment. The best way to reduce poverty is to create jobs in the economy. To create jobs, you need the private sector."
Zahid Hussain, a lead economist of the WB in Dhaka, said Bangladesh needs to have a per capita income of $1,400 to become a middle income country, and so a shock cannot put it back in the lower middle incomegroup.
"To do that, we need 8 percent GDP growth. But that will not be easy to achieve with the as-usual policy and governance."