State banks to get more leeway
The central bank plans to ease some terms and conditions for state-owned banks on credit growth and operating costs, letting them compete with their private peers with vigour.
“More autonomy will be given to the boards of four state-run banks,” said a high official of Bangladesh Bank, pointing to a shift in government policy following the banks' transformation into public limited companies.
A concrete step in this regard will be taken following the appointment of new chief executive officers for Sonali, Janata, Agrani and Rupali banks, according to the finance ministry.
Despite such relaxation, monitoring by the central bank must not cease, some top officials of state banks said, suggesting a check on any uneven influence from bad borrowers.
Four years back, Bangladesh Bank entered into a memorandum of understanding with the boards of state banks. At that time, as many as 17 conditions had been imposed on those with expectations of improved performances.
As per one of these conditions, the 2009 credit growth of the banks was restricted to 10 percent over the amount spent in the previous year.
In line with Bangladesh Bank rules, commercials banks in general are not allowed to lend any individual or organisation an amount that exceeds 35 percent of any bank's paid-up capital. The ceiling is 10-25 percent for state banks.
Sonali Bank's limit is 10 percent, Janata and Agrani's 20 percent and Rupali's 25 percent.
The borrowing limit is likely to be at par with other banks as part of the new move.
In 2009, none of the four state banks was allowed to go for any operating cost that crosses the amount spent a year earlier. However this type of expenditure could not be checked, despite the central bank's controlling move. This condition, officials hinted, will also be eased to run banks with a commercial attitude.
Central bank statistics show a decline in the state banks' market share -- both in loans and deposits. For state banks, the market share is 27 percent of the total deposits and 23 percent of the total loans. On the contrary, the share of the private banks is 60 percent of their total deposits and 64 percent of their total loans.
The lifting of restrictions will enable the state banks to run independently, say many bankers.
However a state bank CEO sees the restrictions in a different way and says experiences are mixed: opportunities and problems. The problem was, they had to make profit competing with other banks while their hands were tied. The benefit was, unwanted pressure in sanctioning loans could be avoided under new conditions.
After making the new move effective, he said, the central bank should continue monitoring to make sure that political or other influential quarters do not exert pressure on them.