Dhaka, Bangladesh (BBN)– The central bank of Bangladesh has asked four state-owned commercial banks (SoCBs) for taking effective measures to improve their financial health immediately by expediting recovery of classified loans, officials said.

The Bangladesh Bank (BB), the country’s central bank, has also warned the top management of SoCBs that it might appoint observers to the boards of directors of the banks if they failed to improve their respective performance.

The warning came at a meeting held at the central bank headquarters in the capital Dhaka on Sunday to review the memoranda of understanding (MoUs) signed between the BB and the four SoCBs — Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank. Governor Dr. Atiur Rahman chaired the meeting.

The central bank also cautioned that it would take stern actions against the chief executive officers (CEOs) and managing directors (MDs) of the SoCBs using clause 46 of the existing Banking Companies Act in the event of non-compliance with its directives and rules.
Chairmen and CEOs-cum-MDs of the public banks attended the review meeting.

“We’ll appoint observer to the board of directors of the SoCBs, if necessary,” Deputy Governor of the BB SK Sur Chowdhury told reporters while replying to a query after the meeting.

The central bank advised the SoCBs for taking effective measures to improve their financial health immediately through expediting the recovery of classified loans along with establishing good governance, he added.

At the meeting, the central bank identified four major problems of the SoCBs and asked them to resolve the problems immediately for improving their overall financial health.

The problems are unsatisfactory level of cash recovery from defaulters, weakness of internal control and compliance, inadequate automation and lack of good governance, according to the BB officials.

BB Governor Dr. Rahman expressed dissatisfaction over the financial health of the SoCBs, saying that classified loan and capital shortfall are key problems of the SoCBs.

The BB governor also asked the SoCBs to put greater emphasis on increasing the net profit by improving their efficiency level and reducing their respective size of their classified loans.

Dr. Rahman also informed the meeting that the government would not provide fund repeatedly to meet capital shortfall of the SoCBs. “Such recapitalisation increases the financial pressure on the public.”

He also asked the CEOs and MDs of the SoCBs for taking measures to ensure proper use of loans.

The chairmen of SoCBs informed the meeting that they were not getting responses sufficiently from the defaulters including top-20 ones.

The SoCBs have been asked to complete their automation process by the end of 2016 to ensure better services to their clients.

The central bank instructed the banks for taking necessary measures to properly implement the existing core-risk guidelines to minimise their financial risks.

The BB earlier had identified six core-risk areas in the country’s banking sector. The risk factors are: credit, asset and liability, foreign exchange, information technology, internal control and compliance, and money laundering.

The meeting also discussed different issues including liquidity situation, credit growth, operating expenses and cost of funds of the SoCBs.

The central bank earlier had signed the MoUs with the management of the SoCBs to improve their financial performance by providing policy support.