Inept policies undermining public sector banks

THE defaulted loans stood at 10.47 percent of the total outstanding loans in the banking sector as of March 31 this year compared with 9.69 percent of the total on last December 31. In absolute term it is a huge sum of money and its exponential rise instead of progress in recovery is alarming to the safety of the banking sector as a whole, Former interim government’s Finance Adviser AB Mirza Azizul Islam is quoted in a report on a local daily that the country’s business had faced a dire situation between January and March of this year due to political turmoil when loan recovery further failed aggravating liquidity crisis in banks.
Of the total classified loans, five state-owned banks – Sonali, Janata, Agrani, Rupali and BASIC – stood at Tk 22,654.04 crore as of March 31, 2015 from Tk 22,763.21 crore as of December 31, 2014. The classified loans in the private commercial banks rose by Tk 4,321.20 crore as of March 31, 2015 from the end of December 2014. The total classified loans in the PCBs increased to Tk 22,747.42 crore as of March 31, 2015 from Tk 18,426.22 crore as of December 31, 2014.
The above statements would be more credible if the performance of the state owned banks was even remotely inspiring. State-owned banks had almost 41.5 percent of all defaulted loans while controlling roughly 25 percent of all deposits whereas private commercial banks had almost a similar percentage of defaulted loans while controlling almost 63 percent of all deposits. In other words, private banks were more successful by a factor of roughly two and a half times more in not giving credit to firms or individuals who were long-term risks. This is why the public confidence in private banks has increased by leaps and bounds since 1991 when the second generation scheduled private banks first started to operate – in the last ten years alone the total deposits of the banking sector in such banks has increased from roughly 47 to 63 percent – a staggering number.
It is not difficult to guess why – when government banks once had the best and most educated people as managers now they have the worst. Moreover policies in public sector banks are guided by politics and cronyism and thus they tend to offer worse services in almost every area of banking. While it is certainly possible that the recent political events may have had a hand in increasing the level of defaults, it is also equally certain that the total amount of classified loans should not be at the current level.
It is so high only because of the inept and toxic policies applied by public sector bank officials who don’t even try to determine the suitability of persons who get loans. It is highly recommended that corrupt policies in handling banks must make way to farsighted banking to save them from plunging into bigger crisis.