Putting hard-earned money into black holes

Dhaka,  Sat,  22 July 2017
Published : 17 Jun 2017, 20:08:59 | Updated : 17 Jun 2017, 21:08:57
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Putting hard-earned money into black holes

Anyone making an assessment of the Bangladesh's overall economic situation can hardly miss the state of its banks, particularly the state-owned ones. The International Monetary Fund (IMF) also could not. In a recent report it identified the banking sector as a potential menace for the Bangladesh economy. The performance of the public sector banks led the multilateral institution to make such an observation. These banks, according to data available with the Finance Division, ate up more than Tk.116.55 billion in taxpayers' money during the past six years beginning from the fiscal year (FY), 2011-12. The government injected the amount into public sector banks to make up for the erosion in their capital base, at least, partially. In the budget for the upcoming fiscal, Tk. 20 billion has been earmarked for recapitalisation of these banks as against their estimated capital shortfall of Tk. 140 billion. 

The need for replenishment of the public sector banks appears to be perennial; they have virtually become 'black holes'. An unending increase in the volume of non-performing loans (NPLs) is particularly responsible for making these banks deficient in their capital. The private sector banks, too, have been encountering this problem. But the fact remains that their NPL problem is not as bad as that of the public sector banks and they are not using taxpayers' money to meet the capital or provisioning shortfall, if there is any. 

This is no secret that the government is very unhappy with the performance of the public sector banks. The finance minister has, on a number of occasions, expressed his strong dissatisfaction over the state of affairs with these banks. Yet the situation has not improved. Rather, in the case of many banks, the problems have aggravated. In the year 2016, the banks concerned together earned an operating profit of Tk.20 billion, down 37 per cent from a year ago. Their net loss increased to Tk. 5.11 billion in 2016 from that of Tk. 1.25 billion in 2015. The outlook is bleak. It is feared the current state of affairs would continue despite concerns being expressed by the government and various other quarters and periodic infusion of capital with taxpayers' money.  

The substantial volume of funds that the government has been injecting into the errant state-owned banks every year belongs to the taxpayers. The latter do not relish the wasting of their money on an inefficient band of financial institutions that are unlikely to improve their performance if the current state of affairs continues. Both private and public sector banks are operating in a market where conditions are not that ideal. The private banks, however, at the end of the year produce dividends of varying amounts for their shareholders. But their state-owned counterparts only count losses. 

Experts and multilateral donors have long ago diagnosed shortcomings of ownership as the real reason behind all the problems facing the state-owned banks. The government as an owner has been both indulgent and interfering in the operations of these banks. There are scores of instances where the people responsible for bringing the banks to such a poor state got away with their crime because of the government's indulgence. The government ignored demands coming from different directions to take actions against top errant borrowers and unscrupulous people on the boards of these banks. The multilateral donors have, from time to time, extended funds and technical assistance to improve the performance of the banks. But ultimate outcome was frustrating.  

It is, thus, high time for the government to consider some other measures to improve the situation. Giving up the control over the public banks, partially or fully, could be a viable one. When the government has initiated many unpopular measures such as levying of value added tax at a uniform rate of 15 per cent on goods and services to mop up enough revenue to bankroll the budget, how can it afford putting the taxpayers' money into black holes - the state-owned banks?

 
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Editor : A.H.M Moazzem Hossain
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