Boards of state banks inactive for 3 months IMF asks govt to appoint directors as per Bangladesh Bank criteria

Posted by BankInfo on Mon, Dec 17 2012 06:46 am

The boards of state banks have remained dysfunctional for more than three months as the government has been unable to appoint directors to the banks' highest policymaking panels.

Officials of these banks said they cannot take important decisions, including those for approving private sector loans and rescheduling loan proposals, in absence of the boards.

Finance ministry officials said the reconstitution of the boards is getting delayed as the finance minister finds it difficult to choose the right people for the posts after the recent scams and the allegation of involvement of their directors in the frauds.

The International Monetary Fund has also asked the government to appoint directors who meet the 'fit and proper' criteria of the central bank.

An IMF mission during its recent visit to Dhaka made the suggestion and the government also committed to go by the recommendation, a finance ministry official said.

Since the first week of September, about 40 posts of directors in different government-owned banks and financial institutions have been vacant. Of the posts, 26 are with Sonali, Janata and Agrani banks.

The managing director of a state bank said the amount of default loan may increase much this year in absence of their boards.

He said loan rescheduling is not possible without the board's decision and for loan recovery, rescheduling is necessary.

The managing director of another bank said they contact the finance ministry almost every week, and the officials at the ministry assure them that the boards will be reconstituted next week but it does not happen.

The finance minister has contacted some eligible people and offered them directorship in the boards but they have rejected the proposals, the ministry officials told The Daily Star.

The officials said the finance minister has been talking unofficially with the central bank on whether some of his choices can be appointed as directors.

They said many of the vested quarters are still lobbying for the posts of directors at the state banks.

There have been allegations that some of the directors take commission from businesses as well as individuals in helping them get loans from the banks.

After coming to power in 2009, the present government appointed some former leaders of Jubo League and Chhatra League, the youth and student wings of the ruling Awami League, as the directors of the banks.

The state banks had made some progress as a result of the implementation of the World Bank's financial sector reform programme but it was hampered in the recent times due to the interference by some directors with political affiliation.

The central bank also warned the boards of the banks and the finance minister several times about such interference.

In December 2010, the central bank's board also discussed the issue of interference by the state banks' directors. The board expressed concern over the matter and decided to convey the concern to the government in writing.

Later in early 2011, Bangladesh Bank Governor Atiur Rahman wrote a letter to the finance minister, saying: “In the day-to-day activities of the banks viz loan approval activities, transfer and promotion, direct interference by the boards and incidences of exerting influence have come to our knowledge.”

The letter also said the issues were very important and needed immediate steps.

But no action was taken. Later the finance minister organised a face-to-face meeting between the BB officials and the directors of the state banks where the directors severely criticised the central bank officials.

News: The Daily Star/Bangladesh/17th-Dec-12