Finance Minister AMA Muhith's assurance that government would not let any of the country's banks 'die' would be highly appreciated by both bank management and depositors. But the method he suggested to keep a troubled private sector commercial bank (PCB), in this case, the Farmers Bank Limited (FBL), afloat is sure to prompt many to raise their eyebrows. Four to five banks, according to the minister, will buy 60 per cent stake of the FBL, a fourth generation bank. The FBL came into being only four years back, along with eight more PCBs. Now, consultations among four state-owned banks and an investment institution are already on in the matter of owning the majority shares of the FBL.
The owners of the FBL reportedly wanted the government to inject funds so that they could retain their hold on the bank. But the latter, instead of complying with that request, is pushing the state-owned banks and financial institutions to buy stakes of the scam-hit PCB. If the move materialises, it would be the first-ever instance of saving a private bank by its public sector counterparts from eventual liquidation. Owning stakes by state-owned entities in private sector firms, however, is nothing new as such investments are done on financial consideration.
But one can hardly ignore a couple of issues here. Firstly, are the public sector banks financially strong enough to buy stakes in question? The Ministry of Finance knows the answer well, for it has been receiving letters of request, one after another, from the state-owned banks (SoBs) to replenish their capital. A report published in this paper last Sunday said the largest public sector bank, the Sonali Bank, sought an urgent bailout fund worth Tk.60 billion. However, providing funds for capital replenishment of these banks with taxpayers' money has been a routine job on the part of the government for many years. The presence of a large volume of soured assets is largely responsible for deterioration of financial health of the SoBs.
Secondly, why should the SoBs invest funds in a scam-hit bank which has hardly any prospect of making a comeback? The banks cannot play with depositors' money. Moreover, the government, as the owner of the state-owned banks -- such ownership, however, has been the greatest disadvantage for the public sector banks to run their operations smoothly -- should dictate things with the SoBs and state-owned financial institutions, only in administrative affairs. Investments of such bodies should not be its headache. The Finance Minister himself, on a number of occasions, held government's interference in the operations of the SoBs responsible for their present deplorable state.
Notably, the Finance Minister's assurance about saving the troubled banks at any cost coincided with concerns aired over the state of the banking sector by the Article IV Consultation Mission of the International Monetary Fund (IMF) that concluded a two-week-long visit to Bangladesh last Thursday. The mission suggested strengthening of banking sector regulations to meet the ongoing challenges, including the presence of a large volume of non-performing loans. The fact remains that had the banking sector regulations been tough and their enforcement proper and timely, there would not have been any rat race for securing licences to set up new banks by people having strong political links. The problem that the government is now encountering is, to a great extent, its own creation. It should not have been so generous while allowing new banks.