Observer appointment in weak banks don’t give effective result

No improvement in financial health

Industry Desk: The central bank recruited observers can’t bring any significant changes in the financial health of the weak banks and financial institutions. Since the process is adopting by Bangladesh in engaging observers in the poor performing commercial banks; there is no citable progress been achieved in Bangladesh, it observed.
The banking sector is reeling in weakness and chaos. No effort to improve the situation is yielding results. Bangladesh Bank has appointed monitors, coordinators and administrators to normalize 14 distressed banks and one non-bank financial institution.
But they are completely helpless to the board of directors of the bank. These observers and coordinators are only busy with the responsibility of keeping the rules on paper. Because the actual power of bank management rests with the board.
Even observers and coordinators play the role of silent spectators in bank loan sanctioning, rescheduling, default, foreclosure, recruitment, income, expenditure and discipline. They also do not have the power to decide on any irregularities.
They can only inform the Central Bank of the status of the concerned bank. However, according to the existing law, the central bank can dissolve the board of any bank and appoint an administrator. But the central bank is not walking that path.
The appointment of observers and coordinators has now become the central bank’s compliance program.
Bangladesh Bank executive director and spokesperson Majbaul Haque told, ‘What would an observer and coordinator do alone? Everyone knows how much can be done alone. They can’t play any role in loan approval, default recovery or recruitment. And central bank can dissolve the board of any bank and appoint administrators. However, this is not a solution. There is no notification of Bangladesh Bank regarding the appointment of observers and coordinators. There is no detailed mention of their powers or functions. Initially, the observer attended the board meeting of the bank and observed everything and informed Bangladesh Bank. But the Coordinating Council does not attend the meeting in person. They try to work as best they can.
According to the latest report of the central bank, observers are assigned to relatively less vulnerable banks and coordinators to more vulnerable banks. In that light, Bangladesh Bank has appointed observers in 5 state-owned and specialized banks. And 9 private banks are given coordinators. Besides, the administrator is placed in a non-bank financial institution.
When asked about this, the former governor of Bangladesh Bank Salehuddin Ahmed told, “The complaint that observers in banks can’t perform their duties properly is quite old. Observers are not able to reflect opinions in the council.
A rule should be made that the decision will be final only after the opinion of the observer or coordinator. If they can’t do that, they have nothing to do but perform their duties on paper. There will be no change in the weak banks.
The manager of a private bank said that the governor said in a press conference after assuming office that 10 weak banks have been identified. Steps will be taken to strengthen them soon. After such a statement by the governor, a meeting was held with some weak banks. MoUs were signed with several targets and coordinators were appointed in the respective banks.
But there is no improvement in various irregularities such as insufficient collateral of banks, loans created through irregularities, high defaulted loans, showing expenditure more than income.
This means, not the appointment of supervisory coordinator, but the lobbying for loan waiver in banks should be stopped. Otherwise, good governance will not return to the bank. And in some banks, the observers are helpless. Because the hand of the bank owners is much stronger than that of the observer.
It is known from talking to the concerned people of Bangladesh Bank that usually in the state-owned banks, officers of the rank of executive director of the central bank and officers of the general manager level of other banks serve as observers. And the observers can present their opinion in the council meeting. However, coordinators have been appointed in National Bank, Bangladesh Commerce Bank and Padma Bank, who will not go to the bank in person.
A coordinator, on condition of anonymity, said that the appointment of coordinators to prevent irregularities and corruption in banks is very unlikely to be effective. The board of the bank sometimes becomes reckless. Even in the presence of observers, irregularities occur in some banks. Observers can participate in the meetings of the board, executive committee and risk management committee of the concerned bank. You also have the opportunity to comment. But there is no power to prevent it.
In this regard, the spokesperson of Bangladesh Bank Mejbaul Haque said, “It is not mandatory for the coordinators to attend the board meeting of the bank. But there must be observers. Many people can’t do the work of the central bank properly. For this reason, Bangladesh Bank is going to appoint a coordinator instead of an observer post. It is known that Bangladesh Bank has held meetings with National Bank Limited (NBL), Bangladesh Commerce Bank, Padma Bank (formerly Farmers Bank), ICB Islamic, and the foreign National Bank of Pakistan. Finally, a meeting was held with a private bank. A three-year MoU has been signed with some of them. Officers of executive director rank are appointed as coordinators in these banks.