The country's leading economists and bankers Sunday identified severe weaknesses of state-owned commercial banks (SCBs) and risks related to ensuring financial stability and management operations as the major challenges to maintenance of sustainable development of the country's overall banking sector.

They also stressed the need for financial inclusion, banking automation and strengthening of bank supervision and central bank autonomy as imperatives for promoting sound growth of the country's banking sector.

The economists and researchers pointed out these major challenges facing the banking sector, while speaking at the working session of a seminar titled, "Financial Institutions and Management" at Jahangirnagar University (JU).

The programme was organised as part of a three-day seminar on "Bangladesh at 40: Changes and Challenges," organised by Faculty of Business Studies of JU.

Professor K Bazlul Huq, Chairman of the state-owned Agrani Bank Limited, chaired the session.

The Financial Express (FE) was the media partner of the event.

The discussants in the session also said the challenges need to be addressed in a befitting way in order to ensure sustained development of the country's banking sector.

Addressing the seminar, Toufiq Ahmed Chowdhury, Director General of the Bangladesh Institute of Bank Management (BIBM), said it needs no reiteration that the past efforts towards restructuring the SCBs in Bangladesh could not bring about the desired results.

On the other hand, it is obvious that the overall efficiency of the banking system cannot be ensured without a turnaround of the situation in SCBs, he added.

"After the corporatisation of the SCBs, all the commercial banks were expected to enjoy a level playing field within a uniform regulatory framework. But unfortunately, coporatisation of the SCBs is not being reflected in their governance, operation and finally, overall performance," Mr. Chowdhury noted.

In 2009, four SCBs held 28.6 per cent of the total industry assets as against 31.1 per cent in 2008, according to the central bank statistics.

In his paper on 'Financial Market: Past, Present and Future', the BIBM chief focused on changes and challenges in the country's banking sector since 1972.

For recapitalisation, the corporatised SCBs should go for raising new capital by issuing initial public offering (IPO), non-cumulative perpetual preferred stock and long-term subordinated debt, Mr Chowdhury said in his paper.

"…the SCBs must undertake effective measures for reducing non-performing assets and banking costs," he noted.

About financial inclusion, he said the commercial banks should themselves come forward for implementing the financial inclusion programmes.

Financial stability and risk management practices are among the issues that came into the limelight, following the global financial crisis, he said, adding that serious financial instability can manifest itself in terms of banking crisis and recession and can be very costly for any economy, in terms of disruption to the real sectors causing reduction of output and loss of jobs.

"Therefore, to maintain and enhance the pace of growth, it is very important to minimise the risks of instability," he noted.

Dr Chowdhury also proposed that the post of the central bank governor should be made a constitutional one. This will help ensure its independent functioning as the monetary watchdog.

"We need honest, dynamic and patriotic persons to improve the SCBs financial health," Professor K Bazlul Huq said while explaining the need for strengthening in the SCBs' management.

He also said the policy makers should give attention to ensuring stability of the country's overall financial sector.

S M Hashemi, Director of the BRAC Development Institute (DBI), suggested that the micro-finance institutions (MFIs) should introduce new products to ensure access to credit of the ultra poor across the country.

In his paper on 'Democratising the Financial Sector: Next Generation Challenges', the DBI director said a central credit bureau necessary to maintain credit history and repayment capacities of the micro-credit borrowers to check overlapping.

Clients borrow from one MFI to pay off another, he said, adding that multiple borrowing leads to increased indebtedness and worsening client conditions.

Nazrul Islam, Professor and Dean of the State University of Bangladesh, said Bangladesh is a developing economy that is primarily based on agriculture and ready-made garment (RMG) industry.

The country is the largest producer and exporter of RMG products as a plenty of cheap women labourers are available here, he said, adding that remittance receipts from the overseas Bangladesh accounted, as a sector, for about US$11 billion which is equivalent to 7.0 per cent of the country's aggregate national budget.

"Public sector management has substantially been affected by the bureaucracy, corruption, demonstration effect of corruption, frequent changes of the rules and statues, poor management, and, above all, the mindset of the people who influence the systems and are influenced by the systems," Mr. Islam said in his paper titled, 'Whither Private Sector Management in Bangladesh'.

On the other hand, the private sector management is influenced primarily by the related government policies including that of privatisation, he said, adding that the government policy-regime regarding the regulation of private sector enterprises has been changed and modified at different times by the different governments.

Among others, Akhter Hossain, Economic Adviser, the Bangladesh Bank (BB) and former Managing Director of the Prime Bank Limited Ehsanul Huq also spoke on the occasion.

Source: The Financial Express/ Bangladesh/ 12th Dec 2011