License for three private banks ill conceived

WHEN big loan scams are putting many private banks to insolvency for mismanagement and fund grabbing, the government plan to give license to three more banks on political consideration appears highly ill conceived decision. Many banks including state owned banks are on the brink. Farmers Bank Chairman Muhiuddin Khan Alamgir on Monday resigned from its board after Bangladesh Bank asked him to quit for loan irregularities. The bank’s Audit Committee Chairman Md Mahabubul Haque Chisty also stepped down from the board.

The Central Bank asked the two directors last week to resign. If they had not stepped down, the BB would have removed them from the board under the Bank Company Act 1991. Farmers Bank, established four years ago, went under big restructuring of management to get bail out loan from Central Bank to save it from going into insolvency.

Non-performing loans in the banking sector, according to reports published by the BB, surged to more than Tk 80,000 crore. The figure would have been much higher if bad loans to the tune of Tk 45,000 crore had not been written off, the statement said.

In this volatile scenario Finance Minister AMA Muhith’s statement defending setting up more new banks in the private sector when existing ones are failing, is unrealistic and lacks prudential judgment. Economists are vehemently opposing the move but the Minister is paying no heed to such advice. The Bangladesh Bank is wrapping up the preliminary processes for issuing licences to two more banks following recommendation from the Finance Minister himself.

Muhith told reporters that sponsors of two of the banks have ties with the government as party men. What he wanted to say is that their demand can’t be overlooked. The rationale of the Finance Minister is interesting — he seems to think that non-performing banks will either be liquidated or merged with other better performing ones to say new banks deserve consideration.

If this is the only rationale for setting up new banks — that if they fail they will merge or be destroyed, then it is beyond comprehension. Why set up new banks when even the existing ones are saddled with huge non-performing loans? It isn’t as if efficient managers and employees can be found overnight to run these.

Setting up banks on political considerations runs the risks of defaulting — an unsettling scenario increasingly noticeable in private banks along with public sector banks. This is not true that majority of public funds now go to private banks as public banks are sitting over huge non-performing loans. Setting up yet more banks to work in the same crowded space will only increase the risks for yet more bad loans and inefficiencies. This cant be good for our beleaguered financial sector.