Regional Banking Conference: State-owned banks in Bangladesh and India highly inefficient

This was observed at a two-day conference at the Bangladesh Institute of Bank Management in Mirpur, Dhaka

Senior bankers and academics at a regional banking conference, on Wednesday, observed that state-owned banks in Bangladesh and India are highly inefficient.

Underscoring the need to establish good governance in the banking sector, the top bankers said that the concept of good governance should be a part of banking culture—rather than regulations.

Central and senior bankers from different Asian countries, including: Bangladesh, India, Nepal, and Malaysia attended the two-day conference at the Bangladesh Institute of Bank Management (BIBM) in Mirpur, Dhaka.

The speakers urged all concerned to be careful about willful bank defaulters—to save the banking institutions.

BIBM governing body chairman and Bangladesh Bank (BB) Governor Fazle Kabir attended the inaugural session as the chief guest. Professor Dr. Shah Md. Ahsan Habib, Chairman, Organizing Committee, Annual Banking Conference (ABC) 2018, delivered the welcome speech. Dr. Toufic Ahmad Choudhury, Director General (DG) of BIBM, presented the keynote on the inaugural session.

Faruq Mainuddin Ahmed, Managing Director & CEO, Trust Bank Ltd said establishing good governance should be a part of banking culture—rather than regulations. The practice of good governance must be second nature to bankers.

“Willful defaulters are dangerous to the banking sector and the economy. We must be careful about the menace. Everyone will have to fight against them,” he added.

“In future, one of the biggest challenges for banks will be the shortage of quality manpower,” the Trust Bank MD said.

Syed Mahbubur  Rahman, Managing Director and CEO, Dhaka Bank ltd & Chairman, Association of Bankers’, Bangladesh said that: “Human resources and capital management of banks are very important. Now, the banks will have to prioritise these two issues.” Additionally, he insisted on training banks’ employees. 

Md. Mehmood Husain, Managing Director & CEO of NRB Bank Ltd said that: “Bankers must remain updated about new issues. They should be aware of IT security.”

Bangladesh Bank Governor Fazle Kabir said:“In recent decades there have been many changes happening in the world— not just on the political, but also on the economic, front. This has meant huge changes in our economy and the way we run our business. This also means that many people have not been able to be a part of this improvement. We have observed that this is creating populism.”

“That’s why, this year, we want this conference to look forward. Let us not look back at the financial crisis, which we have spoken aboutmany times. Our banking sector, I am pleased to note, is indeed more than ready for the arrival of this new era; a new era marked by the unstoppable wave of innovation and technology,” he added.

BB Governor said: “Our banking sector is responding, or to be more precise, evolving smartly. Technology has given rise to a more competitive, but yet more vibrant, market—boosting product offerings and the business performance of banks. Turning to our banking industry, technology is, without doubt, a critical game changer.”  

Four papers were presented on key operational and management areas of banks at the plenary session of the conference.

A keynote paper presented at the event was, “Exploring the Strategies of Managing Non-Performing Loans (NPLs): An Analytical Revisit of NPL Management in Selected Asian Countries,” which studies NPLs—one of the major obstacles for banks and financial institutions, and a key concern for both bankers and regulators.

The paper was co-authored by Mohammad Omar Faruk, Bank Asia ltd, Md. Saiful Islam, Mutual Trust Bank ltd, and Mohammad Motiur Rahman, Mutual Trust Bank ltd. 

This paper attempts to study the cases of selected countries focusing on: their management of NPLs, strategies, regulatory measures, and other vital factors those helped curb the reign of NPLs.  The paper suggests that careful planning and effective decision-making is required for banks to manage NPLs. The study also recommended that tightening bank supervision and strengthening capital requirements to help banks to overcome the NPL problem.

Another paper titled, “Do Private Commercial Banks Outperform State-owned Commercial Banks? -Empirical Evidence from Bangladesh,” examined the performance of state-owned commercial banks, conventional private commercial banks, and Islamic commercial banks operating in Bangladesh from 2009 to 2014. 

The paper was co-authored by BB DGM Md Golzare Nabi, Dr. Md. Aminul Islam, associate professor, Universiti Malaysia Perlis, Malaysia; and Dr. Rosni Baker, professor, Universiti Malaysia Perils, Malaysia.

The paper said state-owned banks are highly inefficient—followed by conventional private commercial banks and Islamic banks.  The paper also showed that state-owned banks and Islamic banks face technical inefficiencies due mainly to scale inefficiency—while technical inefficiency of conventional private commercial banks is attributed mainly to pure technical inefficiency.

A keynote paper titled, “Profitability of Banks in India: Impacts of Market Structure and Risk,” investigates the impacts of market structure and risk to profitability of Indian banks.

The paper was co-authored by Santanu Kumar Ghosh, Professor of the University of Burdwan, India; and Santi Gopal Maji of North Eastern Hill University, Shillong, India. 

The study finds a significant negative impact of bank risk to profitability in the Indian banking Industry. With regard to the influence of market structure, the study finds a negative association between concentration and profitability. However, the study fails to discern any significant impact of liquidity and bank size on the profitability of Indian banks.

The last article of this session titled, “Analysing bank stability in India: Evidence from 2007/08-2016/17,” constructs an index of bank stability for 66 commercial banks operating in the Indian banking industry over the period of 2007-2008 to 2016-2017.

The paper was co-authored by Rachita Gulati, assistant professor, Indian Institute of Technology Roorkee Uttarakhand, India; and Nirmal Singh, research scholar, Indian Institute of Technology Roorkee Uttarakhand, India.

The study reveals that in Indian state-owned and private banks do not qualify to be in the high stable bank category during the study period. Nevertheless, the liquidity of banks has remained more or less stable. Analysis of rank sensitivity reveals that ranks are consistent at the industry level.
Source: https://www.dhakatribune.com

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