Recommendations of Bangladesh Bank are not enough for implementation

Bangladesh Bank (BB) has asked the government for a time-bound action plan for four state-owned commercial banks (SoCBs) such as Sonali, Agrani, Rupali and Janata Bank to meet their existing capital shortfalls and make them operationally sound as reported in the press last Saturday. It has laid emphasis for setting specific target under annual performance agreement (APA) for loan recovery and control over their operational costs.
 The central bank has also recently put forward several other suggestions to financial institutions division (FID) of the ministry of finance for devising the action plan to mitigate the fragile financial situation in these banks. As of December 2019, the capital shortfall of the four SoCBs was Tk 981.65 billion, with staggering default loan causing serious liquidity crisis.
The bank’s regulator has also rightly called for making lower loan targets and advance stunning their credit growth rate in line with deposit growth rate among a lot of other recommendations. Such actions are urgently needed to bail out the banks from existing capital shortage and poor governance.
We must say these are good recommendations but not new ones. Banks were almost regularly asked to exercise cautions in matching loans against recovery among such other advisories. But these never worked and we are not sure whether the new ones would work.
In fact the problem is elsewhere. Plainly speaking most SoCBs problems are not their own creation but the creation of the government. The government appointed board of directors including party men who influence the bank’s decision to approve questionable loans to questionable parties. Most such loans become bad loans. Moreover, the political and business elite controlling the economy and financial system are undermining the banks taking huge loans.
The government is regularly borrowing from state-owned banks drying their available business capital for loans to private business. Business houses are regularly taking undue loans using political influences and withhold repayment. The government offers frequent loan rescheduling and writes off as political favours to party business men.
Powerful people are stealing money from SoCBs under political cover and making regular capital flights destroying those banks. We would ask the government to put off its hand from banks’ regular business to save banks from the brink. BB’s recommendations alone are not enough to save them.