Banks` boards must be free from outside presence

OUTSIDERS are dominating banks’ boards, many as dummy directors and influencing loan operations causing deterioration in the financial performance of banks, says a BIBM study released in a national daily on Tuesday. It said these outsiders include business groups, entrepreneurs and politicians, and they are appointing their own people in vital posts such as chairman, director and managing director to work for them. This true not only for private sector banks but also for state owned banks. Almost all state owned banks have lost huge capital in fictitious loans cases in which outsiders in the boards were mainly instrumental. The study has referred to many cases that showed Bangladesh Bank has caught such directors in public and private bank and removed them. We can’t say the situation has yet improved.
The study is essentially an eye opener but what it said is what everybody knows about it. Banks are now indeed property of the rich who control their board and the flow fund to big corporate houses. The study report made a sensational disclosure to say a former chairman of a private bank even attended the board meeting of the bank after retirement and attempted to influence loan approval as an outsider. The findings also showed there are shady transactions that outside directors implement in collusion within-house directors. What is highly critical for safety of a bank is the presence of several family members on the boards of a private bank. They break rules more than protect it making private bank inefficient and sick. Most banks have huge outstanding loans that family directors borrowed against fake loan documents in collusion with other directors.
The central bank issued a circular on 12 November, restricting the presence of outsiders in board meetings while it has appointed 11 observers in commercial banks to watch outsiders’ interference but it remains a highly critical issue how to save banks and protect their capital. Evidence suggest even appointment of independent directors are taking place from among the bank directors close friends and well-wishers thus making it ineffective.
We would say banks must strengthen corporate governance and assert their independent from the government political intervention in board selection and taking loan decision on the basis of cost-benefit consideration. Outsiders’ involvement will only destroy bank and ruin financial institutions.