Cull, R., M.S.M. Peria and J. Verrier, 2017. “Bank Ownership: Trends and Implications”, IMF Working Paper 17/60, International Monetary Fund, Washington.
Mitra, S. and M. Zephirin, 2014. “State-Owned Financial Institutions – Strict Oversight is Key”, MCM Policy Position Note, International Monetary Fund, Washington.
Prepared by Jiri Jonas and Muhammad Imam Hussain.
This paper focuses on SOCBs. In addition, there are also two DFIs operating in Bangladesh. The DFIs are government-owned and financed, and hold less than 3 percent of banking sector deposits and 2.5 percent of assets. They specialize in providing loans to targeted sectors, including agriculture. While their performance is in some respects even weaker than that of the SOCBs, their limited and declining size imply that they do not pose a systemic risk.
For past due/overdue loans, the minimum time due has been reduced from 6 months to 3 months, while the provisioning for classified loans remained unchanged at 20, 50 and 100 percent for the sub-standard, doubtful and bad/loss loans.
The SOCBs moved from profits to losses in 2012. The profitability of the PCBs also deteriorated in this year, dragging down the ROA and ROE for the entire banking sector. In addition to the change in provision requirement, the stock market correction in mid-2011 and 2012 could also have had some impact on banks’ profitability.
The FCB deposit rates are even lower than SOCBs rates. One reason could be better FCBs’ service quality and advisory expertise. Also, the multinational companies’ policy is to do transactions with only three foreign banks in Bangladesh.
Bangladesh Institute of Bank Management recently conducted a survey of chief risk officers, which revealed significant shortcoming in using risk management tools, not just in SOCBs, but in the whole banking sector. See http://today.thefinancialexpress.com.bd/first-page/most-banks-not-using-risk-tools-1518197084?date=10–02-2018
Several examples of fraud in the SOCBs are described in the article “From Cancer to Pimple” in the Economist, April 16, 2014.
BB can remove the managing director of the SOCBs. However, BB’s action against any member of the Board of the SOCBs requires a consent of the Finance Ministry.
It is sometimes argued that because of the implicit or explicit backing by the government, deposit-taking SOCBs do not need to maintain a high capital cushion as private banks because there is little risk of depositors’ run. However, applying the same capital requirements to the SOCBs provides more transparency about budgetary support than guarantees, and serves as a break on expansion of their activities. See Mitra and Zephirin, (2014).