One of the plays of five-time nominee for the Nobel Prize, Maxim Gorky, was improvised in Bengali and was named Abirampaurutibhakshan (eating loaves continuously). The central character, Gokul, was an ever-starving boy. A capitalist picked him up to display how Gokul can eat continuously – a show of fun and surprise in the theatre from where the capitalist profited from Gokul's hunger and distress.
When private banks made hefty profits in 2016, does it resemble Gokul's case by any chance? When the private investment scenario is not robust, does not the seizure of 17.2 percent profit growth by the private banking sector seem perplexing? Is this the last smile of an anaemic man who looks whiter because of the loss of red cells in his blood? How did this happen?
Mainly, three ways made this maniacal profiteering possible: 1) by maximising the spread that we get by subtracting the deposit rate from the lending rate, and thereby depriving the depositors; 2) by a cosmetic surgery in the existing and potential defaulters' accounts; and finally 3) by overexploiting the existing workforce, often women in particular.
In the early 2010s when the lending rate was roughly 15 percent and the deposit rate 10 percent, having a spread of five percent was reasonable since both the rates were high in a high-inflation era. Eleven percent inflation of that time has gradually come down to 5.5 percent and the central bank has consistently urged the banks to bring their spread down as low as possible by improving efficiency. But nothing happened. The spread has remained stubbornly around five percent, signalling no improvement in efficiency and negligible improvement in addressing the default syndrome of the affluent.
So who paid the price? The bank CEOs pleased the super wealthy chairpersons and directors by cutting the pockets of the helpless depositors who have no syndication power to oppose the unjust hemorrhage of their deposit interests – just like Gorky's Gokul had no say on whatever the theatre owner imposed on him.
Bangladesh Bank understands that it cannot dictate interest rates in this age of financial deregulation, and accordingly, it issued a motivational note so the banks do not lower the deposit rates. But who cares? Bank CEOs are smart; they know very well that listening to BB's advice is akin to listening to grandpa's advice about being kind to others, and there is cutthroat competition among these CEOs. If a CEO is kind to the depositors, lets the officers – women especially – go home after 6 pm, spends money on training the workforce, and keeps the right provisioning money for defaulters, that CEO must not be a 'smart guy' in the eyes of the rapacious bank owners. Hence, the CEOs follow Darwin's theory of survival and deploy their brain and accounting prowess to display a profit bonanza to the board at any cost.
This scenario of profit surge despite investment dullness in the real market and excess liquidity in the banking sector invites more bees to the honeycomb of private banking and convinces other tycoons that all fortunes lie in opening new banks. This unhealthy rise in the number of banks, the rate of which is slightly lower than the population growth rate in the 1970s, is making the future growth potential of the nation weaker by creating artificial profit bubbles and neglecting the issues of human capital development within the industry. Since there is a lack of political will to fight the default culture, potential defaulters will make a club, create political influence, manage licenses by bribing or coaxing, and open new banks to rob the cash vault.
Why are banks not interested in merging and creating more market power through strategic alliance? This is something a typical MBA student learns in his/her curricula. The trend is quite the opposite in Bangladesh, and we need to understand that these tycoons' main objective of creating new banks lies somewhere else. If a country like Australia can run on about four banks, seeing a bank-number explosion in Bangladesh with an already high number of 57 banks bodes ill for our economy.
While profit maximising is the main objective of any business entity as long as the lessons of economics go, the private banks in Bangladesh should do a little more in the line of developmental banking. When I first started my professional life in the first private bank of the country 30 years ago, I saw private banking as an engine of generating youth employment in this populous nation. The private banks made remarkable strides in job creation among many other things. However, their progress is not commensurate with the need of the nation.
More than two million youths enter the job market each year and banks, despite being a big player, hire a skimpy part of that. The trend of celebrating the profit bulge is pushing the national goal of employment maximisation to the backseat. But let's also celebrate and formally congratulate the banks that maximise employment. Let's reward the bank chairpersons who employ the most, and let's also warn the bank owners whose profits do not match with the reasonable recruitment of floating but qualified youths.
We embarked on the market economy and privatisation mainly because the government sector fails to create adequate employment and generate growth. But the private economy should not be set on a free run; the government must ensure that ethical goals and national aspirations are fulfilled in the private sector. When I make phone calls to my banking alumni, particularly my lady colleagues (though cautiously), I find out that they work until 7 pm – which is pretty revealing about the overuse of the workforce that partly enables the profit blitz of banks. But employees are afraid to report this to the central bank lest they lose their jobs.
Training is an expense and many private banks cleverly minimise it, damaging the potential of our workers. This obsession with profit-making by any means in the short run will weaken our long run power of development through banking. Hunger for profit may invite a situation where even making a decent amount of profit will be impossible – a situation akin to Gorky's drama in which Gokul, due to excessive hunger, eventually dies from overeating.
The writer is a visiting fellow at Bangladesh Institute of Development Studies and guest faculty at the Institute of Business Administration at Dhaka University.