The finance ministry has initially agreed to a proposal suggested by the World Bank to ‘divest’ a certain portion of government shares of the currently 100 per cent state-owned commercial banks to the stock market to shore up the capital-starved public banks and improve their fragile management. ‘In principle, we are of the view that a certain amount of shares of Sonali, Janata and Agrani could be divested [and sold] in the capital market to prop up the capital base [of the banks] and enhance accountability for the sake of good governance,’ a senior finance ministry official told the New Age on Sunday.
The proposals were made as part of the conditions imposed by the World Bank before it would consider providing any financial assistance to the government to help with the capitalisation of the government-owned banks.
The finance ministry official 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.
The ministry however rejected the proposals of the multilateral lending agency to change the law giving the Bangladesh Bank powers in relation to the appointment and sacking of the bank directors.
In the first week of August, a World Bank ‘Financial Sector Monitoring Mission’ had come to Bangladesh and met with senior finance ministry officials and Bangladesh Bank policy makers to discuss the ailing condition of the state-owned commercial banks.
Following the mission, the World Bank wrote an ‘aide memoire’ in which it expressed its grave concern about the flagging financial situation of the state controlled banks—pointing to the capital shortfall, weak management, poor credit appraisals, lack of professionalism and their lax legal framework.
‘The BFID (Bank and Financial Institution Division) agreed to discuss the recommendations for improving the governance of the SOCBs including the possibility of divesting a part of the shares in the stock market,’ the aide memoire, which has been seen by New Age, stated.
On bringing about reforms in the public banks, the memoire said, ‘The mission indicated that the recapitalisation of the SOCBS would have to be accompanied by reforms in the governance of those banks and the sustainability of the reforms would have to be ensured through amendment of the legal framework, including the amendment of the recently amended Banking Companies Act.’
‘The Governor (Bangladesh Bank) agreed with the need for changes in the legal framework but also pointed out that certain actions that would improve the governance of the SOCBS could be instituted while the required legislative changes were in process,’ the memoire added.
Finance Minister AMA Muhith is expected to give a green signal allowing for a consensus to be forged with the World Bank in relation to these state-owned commercial banks, sources said, adding that any divestment plan must be first agreed by Prime Minister Sheikh Hasina.
Bangladesh Bank and finance ministry officials said the World Bank had also sought further amendment to the existing Banking Companies Act (amended, 2013) to provide the Bangladesh Bank approval powers in the appointment of directors of the state-owned commercial banks.
On this, though, the finance ministry is remaining firm.
‘It is an absurd proposition that the Act will be amended again as the Parliament in its last budget session amended the Act giving the Bangladesh Bank the authority to fire Managing Directors of any of these bank if they were involved in wrong-doing,’ a ministry official told New Age.
In the meetings held in early August, the World Bank officials apparently expressed their ‘astonishment and utter dissatisfaction’ over the recent fund aembezzlement by a number of errant companies from the state-owned banks, another finance ministry official said.
The Hallmark Group embezzled about Tk 3,600 crore from Sonali Bank and the Bismillah Group stole about Tk 1,200 crore from a number of banks, including Janata.
In addition, the Anti-Corruption Commission has inquired into Tk 3,500 crore loan scam involving the Bangladesh Small Industries and Commerce Bank Limited.
The government is yet to recover a single Taka of the stolen money, it is alleged.
-With New Age input
