A Z M Anas

The present government would not back-pedal the banking reform as part of its plan to help state lenders snap out of their bad shape, enabling them to restore their fast-losing market shares, officials said Wednesday.

Bangladesh had initiated the major banking reform in the mid-1990s under a World Bank-funded project, but finance officials acknowledge that the pace of reform has faced hurdles, allowing private banks to jack up their market shares.

"We'll press ahead with the banking reform," a senior finance ministry official said.

"If we change the course, the reversal will be suicidal for us. The old style of banking is simply ludicrous in the fast-changing financial world," the official who oversees the banking sector added.

The Washington-based lender was fearful, its officials say, about the present government's attitude toward modernisation of Sonali, Janata and Agrani banks, which were corporatised in 2007 when an army-backed interim regime was in place.

The three banks, although owned by the government, are now operating as public limited companies, giving their boards greater operational freedom.

"It's a good sign. This government is committed to maintaining the reform momentum," a World Bank official said.

The assurance came after a project mission handed a report to the finance ministry, saying the corporatisation process had started spelling what it called 'visible" change in the three banks.

The mission, led by GM Khurshid Alam, also suggested corporatising the troubled Rupali Bank.

The bank mission also favoured hiring top executives from outside the banks, saying the management support should be extended for another three years or up to the point of divesture in line with the original reform vision.

The global lender, in its report, said that non-performing loans of the new banking corporations reported a significant decrease, the share of good loans increased and operational efficiency improved.

One area, the report said, the banks lag behind is the cost-efficiency.

Critics do not agree with the World Bank's assessment and say the blanket reform recipe would not turn around the health of the banks, still struggling to recover from loads of bad loans.

But the lending agency remains concerned over the state of Rupali Bank, which has a capital deficit of Tk 20 billion.

The financial health of the bank with the government holding 94 per cent of its stake, has continued to deteriorate since 2005 when it was put on sale. The bank has massive problem loans and unsecured assets while its core banking activities are yet to gain pace.

Bangladesh Bank officials said that Rupali last year sought some Tk 20 billion from the government in order to shore up its capital base as it pushed ahead with its five-year growth plan.

Rupali is not only financially strapped, but has severe human resources constraints, as the bank operates far below its mandated manpower, bank officials said.

Rupali Bank officials dispute the World Bank evaluation, claiming that the commercial bank swung back to profit last year and posted a pre-tax profit of Tk 1.15 billion after a gap of five years.

The World Bank provided US$ 250 million in soft loans for the banking modernisation project, launched in 2004. The UK's Department for International Development (DFID) also shared a major chunk of the project costs totaling $88 million. The project is scheduled for completion next year.