[mukto-mona] Fwd: A 'wake up' call for our banking sector

We have been discussing current world affairs and religion for a while. I thought some members may find discussing economic issues re-refreshing. I found an interesting article on our economy (Banking sector). Please share your thoughts on it...


Shalom!!

==================================================================================================================



A 'wake up' call for our banking sector

Source: http://www.thefinancialexpress-bd.com/more.php?news_id=141396&date=2012-08-28

Mamun Rashid

Things are not going at all well with our state owned commercial banks (SCBs). Newspaper reports say, all the indicators (profitability, deposits or loan increases, classified loans and serving the right clients in the right way) are moving in the wrong direction. On the other hand, as we are witnessing, the 'celebrity people' appointed as the chairmen of these SCBs, while being very vocal about financing Padma Bridge with local resources or involved in 'Yunus bashing', prefer to remain totally 'shut' about the 'gangrene' that has been engulfing the SCBs. They are not possibly aware that one bad debt exposure like that of the Hallmark Group (Taka 26 billion) was enough to make 10 per cent down payment for raising BDT 250 billion for the Padma Bridge. Had the bank management been a little bit vigilant in the matters of their 'asset portfolio', they would have been successful to save the entire amount.

Situation is not that good either with the private commercial banks (PCBs). You get to hear in the corridors -- very bad days are coming for PCBs -- loan loss is going to increase, profitability is going down, so is the share price. A chairman of a private commercial bank told me the other day -- 'I can bet, there is going to be many mergers between the banks in the coming days'. There is increasing discomfort among the PCB owners/directors about asset quality, quality of senior management, increasing operational losses and staff getting engaged in frauds, scarcity of new products to serve the emerging need of the clients and more importantly IT delivery platform or processing capability.

Though the owner, the ministry of finance, is still keeping 'mum' on the Sonali Bank or overall dismal picture in the SCBs, it seems that Bangladesh Bank, the banking 'watchdog', has taken cognizance of the situation, albeit late. They want Sonali Bank to send the errant officials home. However, we can't be too happy when the central bank governor himself tells the media that he does not have much to do with SCBs and, more importantly, we are not sure whether this ad-hoc or reactive measures are going to 'stop' the ongoing chaos in the SCBs.

The SCBs need to come out of the image marked by 'poor management, poor risk assessment, rising bad debts, poor automation, low profitability and most importantly poor governance'. My friends tell me -- this will never happen unless the owner loudly say -- 'enough is enough'. Does the government have the ability to say that? I am not sure. At least present governance model can't assure anything like that. With incapable board, intellectually bankrupt management and defaulting clients, we can't be at all happy about the future of the SCBs too. Informed and educated sources even at the ministry of finance would tell you -- 'most of the nominated directors are 'bunch of non-performers', having no visibility about their roles and responsibilities. Therefore you can't expect anything better out of them. Most of the SCBs don't have 'Human Resources (HR) policy, Risk Management policy, Asset and Liability Management policy or as such any policy, other than the ones devolved by the central bank. In every sense, the Executive Committee or the board runs the bank on a weekly basis. Sorry to say, the MD or the CEO plays the role of a 'dancing or entertaining lady'. Otherwise, he or she runs the risk of being the 'opposition person', not helping the board to realise the vision or dreams of their visionary leaders.

The situation is not better with the PCBs either. The CEOs or MDs sail through the coverage of either conflicting directors or ride on the board for almost all decisions. In the bad days they would smilingly 'pass on the bucks' to the directors. The poor (not at all poor though) directors, remain very happy or pretend to remain happy, by abusing the power (facilitated by the MDs or CEOs), getting their nephews or nieces employed in the banks or loans granted in pseudo names or in the name of their friends or relatives. Most of the MDs/CEOs won't put in their best, because every six years they have to look for another 'safe haven'. For many banks, the MDs/CEOs come from the SCBs or banks where their sponsors used to bank with. Many MDs/CEOs are above sixty years, ready to compromise for anything like what we get to see the retiring civil servants doing for getting an 'extension'. Then who are the worst affected parties? The institutions. They remain the most archaic ones, increasingly becoming irrelevant to the clients or future of the economy.

Should we allow this to continue? Any 'fool' would reply -- of course not. Then what we do? Recruit the promising ones as MD or CEO. He or she must have a job description (which will include business expansion, process re-engineering, people management, regulatory compliance and client satisfaction) with proper authority to select his team or 'night riders'. Board's job is to guide him and, to be more precise, support him/her in achieving the set or agreed objectives.

What the owners (if they do have any good intention or honest purpose left) need to do? Immediately review the existing norms of choosing the CEOs/MDs, let him or her work with proper empowerment. For the SCBs, the policy planners or the political masters need to do a real 'soul searching', whether a 'pro-poor' quality or 'political loyalty' is enough for an university professor or a civil servant to become the chairman of a large SCB or as such even Governor of the central bank in an increasingly private sector-led transition economy. I am sure; our martyrs didn't create a country that would only be exploited by vested interest or incapable people.

(Mamun Rashid is a banker and economic analyst. E-mail: mrashid1961@gmail.com)

__._,_.___

****************************************************
Mukto Mona plans for a Grand Darwin Day Celebration: 
Call For Articles:

http://mukto-mona.com/wordpress/?p=68

http://mukto-mona.com/banga_blog/?p=585

****************************************************

VISIT MUKTO-MONA WEB-SITE : http://www.mukto-mona.com/

****************************************************

"I disapprove of what you say, but I will defend to the death your right to say it".
               -Beatrice Hall [pseudonym: S.G. Tallentyre], 190

Your email settings: Individual Email|Traditional
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe

__,_._,___