Boards of the state banks, including that of graft-ridden BASIC Bank, should be held accountable as part of the efforts to improve governance at public sector lenders, the World Bank said yesterday.
"Governance reforms may include a change at the board level because, after all, the accountability of the management of these banks lies in large part at the board level," World Bank Country Director Johannes Zutt said.
He made the comments while replying to a question over the government's reluctance to take action in line with the central bank's suggestion of dissolving the board of BASIC Bank.
More than a month ago, the central bank wrote to the finance ministry to dissolve the board of the specialised bank for its part in huge irregularities in lending practices which made BASIC a problem bank in less than four years.
Before sending the letter to the ministry, Bangladesh Bank removed BASIC Bank's managing director on the same ground. As per Banking Companies Act, only the government can dissolve the board. At a briefing on the proposed budget at his office in the capital, Zutt said everyone is aware that the state-owned commercial banks have been in a poor shape for sometime.
"There are rising levels of non-performing loans. They have received fresh infusion of capital. In the World Bank, our view is that such capital infusion should ideally be preceded or accompanied by governance reforms."
He, however, said it is the government who will decide how banks are run and whether changes at the board level would be made.
Zahid Hussain, a lead economist at the World Bank's Dhaka office, said steps will have to be taken against the boards as well as the borrowers. "Otherwise, it will send a wrong signal."
The World Bank said the budget speech of the finance minister has spelled out reforms about the financial sector, but has not clearly stated anything on how to address the problems besetting the public sector banks.
The upcoming budget has earmarked Tk 5,000 crore to help the state-run commercial banks meet capital shortfall.
"Any further capital injections into the state banks need to be conditional on actions to improve governance. The government should continue a limit on credit growth of the state banks until their governance and reporting system improve," Hussain said.
He said the government would have to send signal that no deliberate loan defaulter will go scot-free.
"If the existing culture of impunity does not change, the loan defaulters will return time and again for taking loans."