Over the past decade, the banking industry in Bangladesh has witnessed many positive developments. But it is now at cross-roads with some big challenges. Will the proposal to privatise state owned banks lead the industry to a right direction?
This is a burning question in the banking industry of Bangladesh where poor oversight and imprudent lending, often to well-connected firms or individuals, are a hallmark of state-owned banks.
But Muhammed Ali, Managing Director of United Commercial Bank limited (UCB), a leading private commercial bank in the country does not see any valid reason to inject funds into the failure banks as the life support for their survival.
"Some banks have become crooked for their misdeeds and inefficiencies in recent past. So there is no reason to keep alive these bent banks with spending public money as life support. Let them go on their own foots", Mr. Ali told The Daily Observer in an exclusive interview last week.
"It is misuse of public money. Rather financial inclusion and good governance along with technology innovation can make them viable", he said.
Banks who will fail to stay afloat in the race should stay in the game for potential acquisition opportunities as and when they appear in the near term. Lack of good governance is the main factor for their pitiable situation, Mr. Ali told the daily during the exclusive interview.
The first part of his interview was published on Wednesday in the daily where the CEO of the UCB has alleged that some banks are yet to adjust regulatory compliances.
The CEO of UCB was asked to give his opinion on the suggestion of the World Bank to privatise the state run banks which are now the point of discussion on the table.
Mr. Muhammed Ali has proven track record in leading various teams in different banks contributing in business policy formulation and strategy management. His intellectual competence reflects in his writings and publications in the national dailies covering socio-economic and business development issues.
The role of the state run banks have come under the scrutiny after the recent two big loan scams popularly known as Hall Mark and Bismillah Scams that embezzled thousands crores of money from banks' exchequers and now looming for more measures to put focus on governance issue.
"Lack of good governance and dictated lending have put the banks in a dire situation particularly the state run ones. The boards of directors of several state-run banks continued to flout rules of lending credit despite severe criticism", Mr. Ali told the daily.
The government injected public funds into the state run banks for their survival. A total of 41 billion taka was injected to keep them alive in 2013, when some top bankers allege that the country's banking industry is in limbo since the 80's contaminated by non-professional approach and inefficiency of state owned banks.
Bangladesh Bank has found a series of anomalies committed by the boards of state-owned banks before the loan scams. The boards of five state-run banks did not maintain any formality in terms of ensuring single borrower exposures, renewal of loans, taking compromise amounts at the time of new loan facilities, loan rescheduling and loan classifying, according to a central bank report.
Mr. Ali observed that the country's banking industry is now overburdened with rising bad loans, high cost of funds and lower credit growth that are the impediments to the growth of the economy, which is showing good sign of growth despite several constraints.
"Bad governance and imprudent lending have put the banks in a dire situation. With the financial inclusion strategy, banks can overcome the challenges and play more role in economic development", he said.
The central bank rightly focused the issue in many occasions and issued guidelines to ensure good governance in banks. But the directives in state run banks were overlooked resulting big loan scams that embezzled thousands of crore taka tin recent days, Mr. Ali said.
In today's context, Mr. Ali said risk management and the evolving regulatory landscape remain the key focus for banks. Emerging priorities include reducing unproductive assets from non-profitable segments, and focusing on core business areas to improve efficiencies.
To overcome the challenge, banks must cut their cost of their services and should adopt product innovation so that they can compete in gamut of competition. Financial inclusion policy has opened a window of many opportunities for them, he said.
A large proportion of the population in the country, largely concentrated in rural areas is believed to be financially excluded from formalized credit markets and payments systems. And banks can increase their earnings through expanding coverage in rural areas, he said.
The biggest challenge for banking industry is to serve the mass and huge market of Bangladesh. Companies have become customer centric than product centric. "The better we understand our customers, the more successful we will be in meeting their needs", Mr. Ali said.
In this regard, Mr. Ali cited noted that his bank the UCB has already made a distinct mark in the realm of financial inclusion with a vast network of 143 branches all over the country with innovative personalized service, innovative technology products, lucrative deposit and credit schemes for SMEs and rural entrepreneurs.
"But we are still far away from exploring the full potentiality of financial inclusion even though a remarkable progress has been achieved by some banks", he noted.
In this regard, the CEO of the UCB said the technology will be an inevitable aspect for banks to face the future challenges. IT spending by the banking sector is expected to grow in the coming days, he said.
"Good governance, financial inclusion and technology will be right tools for the banks to face the challenges", Muhammed Ali, Managing Director of United Commercial Bank told the daily.