Banks with political clout must not plunder public money

Published: 21:58, Aug 11,2017 | Updated: 23:53, Aug 11,2017

 
 

THE performance of the nine new banks which started functioning in 2012, as reviewed by a study of the Bangladesh Institute of Bank Management in its report that was launched on Thursday, seems to be a pathetic tale of banking governance and deplorable failures of the banking regulators, or the government for that matter A severe decline in the financial health of the banks, because of the breach of credit discipline, poor or no borrower analysis and flaws in credit risk assessment, sanctioning and disbursement, has come to such a pass that could only entail further risk for the whole of the banking sector. The central bank has recently detected the disbursement of Tk 7 billion that NRB Commercial Bank, one of the nine in question, in loan made in breach of rules and regulations. The central bank in 2015 also found Farmers Bank responsible for the disbursement of Tk 4 billion in loans without following due procedures, which resulted in an increase in its defaulted loans. In both the instances, the central bank appointed observers to establish corporate governance there but is yet to take any deterrent steps against the bank boards because of the political backing that the banks enjoy.
The amount of defaulted loans of the nine banks increased, worryingly, by 86.18 per cent to reach about Tk 5.09 billion in just the first quarter of this year. But that is not all. Some of the news banks spent a huge amount of money on corporate social responsibility activities ignoring the central bank regulations that 10 per cent of the after-tax net profit of a financial year should be spent on the purpose in the next financial year. NRB Global Bank spent 34 per cent of its profit on the purpose in 2015 and 49.27 per cent in 2014 keeping to calculations that the bank made although it incurred losses in the period. The bank also spent 205.57 per cent of its net profit on corporate social responsibility activities in 2016. Union Bank, which spent 14.34 per cent of its net profit on the purpose in 2016, earlier spent 98.87 per cent in 2015 and 15.13 per cent in 2014. The amount spent on corporate social responsibility activities lends credence to a perception that public money has been misused and abused in the cases. Yet the central bank has failed to take measures to strengthen financial indicators of the nine banks and take action against the bank boards because of the political involvement of the bank directors.
The study, however, reports the central bank to have given approval for the nine banks against its will and it has only put the banking sector at risk. The government, under the circumstances, must rise above partisan interest, to the greater benefits of the banking sector and the economy, and start keeping its hands off banking governance. The central bank must be allowed to do what it is to do, as regulators, to bring back corporate governance in the banking sector. 

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