Govt set to agree to WB proposed reforms for state-owned banksNazmul Ahsan
The government is set to embark on a wide range of World Bank prescribed reforms concerned with the governance and operation of the state-owned commercial banks to obtain from the multilateral donor a loan to assist in shoring up the capital base of these banks.
On Monday, finance minister AMA Muhith approved a proposal to approach the World Bank for a loan to meet the capital shortfall of the state-owned banks estimated to be around Tk 18,000 crore as of June last, a senior finance ministry official told New Age.
The Executive Director of the Centre for Policy Dialogue Professor Mustafizur Rahman however expressed his surprise that the government has failed to undertake a proper analysis to identify the reasons for current fragile state of the ailing banks before seeking the assistance of the World Bank.
‘Any reforms in the public banks must be brought but it should be through our own initiative. The lax regulation of state controlled banks and the weakness of Bangladesh Bank are the main reasons for the undesired situation in the banking sector,’ Mustafiz added.
The Economic Relations Division within the Ministry of Finance is now busy preparing a proposal to be submitted to the World Bank next week seeking funding for the recapitalisation of Sonali, Janata and Agrani Bank Ltd.
‘We have received the signal for approaching the World Bank formally to shore up the troubled banks,’ a senior official in the ERD told New Age on Tuesday.
‘The World Bank stands ready to extend their cooperation subject to our willingness to bring about a raft of reforms in the banking sector, particularly in the governance aspects of the banks, empowering Bangladesh Bank and addressing the regulatory shortcomings in governing banks,’ he added.
The World Bank had earlier expressed its willingness to provide its assistance to the banks after a Financial Sector Monitoring Mission, which visited Bangladesh in August, suggested a number of reforms that it considered were necessary.
In the Aide memoire, the mission said that any capital infusion should be preceded by changes to the governance framework and business structure of the state-owned banks.
This included: transferring power from the finance ministry to Bangladesh Bank to remove directors and chairmen of SCBs; making it mandatory for Bangladesh Bank to screen directors before their appointment to banks; establishing a ‘Blue Panel’ list of qualified potential directors prepared by the Bangladesh Bank from which the government could select and nominate members of the Board of Directors for SCBs; and establishing an expert committee in each state controlled bank to assess the capital requirements and prescribe a plan of capitalisation.
In addition, the World Bank strongly suggested that directors of the banks should not get involved in credit management -- credit appraisals, decisions and follow-up -- which should be the responsibility of the senior management.
Furthermore, the Bank suggested that the SOBs should ‘divest’ a certain portion of the government shares in the banks for sale on the stock market.
‘These pre-requisites are considered necessary to preserve the capital that may be infused and to enhance the banks’ ability to contribute to economic growth,’ the aide memoire of the World Bank’s mission stated.
Finance ministry officials pointed out that it would be a considerable advantage for the government to receive a low-cost loan from the World Bank as the government has only allocated Tk 5,000 crore in the current budget for bank recapitalisation when the combined capital shortfall of the three state-owned commercial banks was at least Tk 17,200 crore.
Between 2004 and 2008, the World Bank provided about $400 million for the implementation of the enterprise growth and bank modernisation project to carry out reforms in the Sonali, Janata, Agrani and Rupali banks.
Critics wondered whether the infusion of any additional World Bank funds would result in any greater success, since the proper functioning of the banks required concerted action from both the government and Bangladesh Bank which in the past did not happen.
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