Move to revive Commerce Bank with public money

The finance ministry injected Tk 67 crore of taxpayers’ money into Bangladesh Commerce Bank to help the private bank meet its capital shortfall brought about by bad management.
The government has a 32 percent stake in the bank, and the fund injection on Thursday came as part of it.
Formed in 1999 through a special law from the remains of the financial institution Bangladesh Commerce and Investment Ltd, the bank has a complex ownership structure.
Three state banks Sonali, Janata and Agrani own another 12 percent of the shares, meaning the government, ultimately, has a 44 percent stake in the bank. The remaining 56 percent of the shares are under private ownership.
However, the government’s and the state banks’ shares are higher tier ones carrying more weight, meaning despite not owning the majority of the shares, they provide seven directors in the 11-member board. As a result, the authority to appoint the chairman and the managing director lies with the government.
Due to the combination of complex ownership structure and the prominent role of the government in the running of the bank, it never performed well.
Private directors, despite owning 56 percent of the shares, do not have a major say, and there is a lack of accountability on the part of the government-appointed directors.
Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said it would have been more effective had the government put in place an effective management at Commerce Bank.
“The best solution is gradual privatisation of the bank,” he said, citing the example of National Credit and Commerce (NCC) Bank.

NCC started its journey as an investment company in 1985, but due to various irregularities it had to be shut down. Later in 1992, it was reopened as a full-fledged private commercial bank.
Despite struggling in its initial years, the bank has now established itself as one of the best performers.
As of September 2013, Commerce Bank’s capital shortfall stood at Tk 248 crore. NCC, in contrast, does not have any capital shortfall; rather, it has a capital surplus of Tk 134 crore.
Commerce Bank’s other indicators, too, are not reassuring. To carry out global business, banks must maintain a minimum capital, which is 10 percent of their risk-weighted assets.
At the end of September, Commerce Bank’s capital adequacy ratio stood at 6.82 percent. Its default loan was more than 18 percent of its outstanding loans, the highest among the private banks, while its provision shortfall against default loans was Tk 101 crore.
As a remedy, Bangladesh Bank on several occasions advised the government to remove the special law to privatise the bank, but no government acted on the proposal.
Meanwhile, BASIC Bank, another government-run bank, is also on the same boat as the Commerce Bank.
Formed in 1992 from the local remnants of the Bank of Credit and Commerce International, BASIC Bank had been a sound institution, with no capital shortfall and negligible classified and default loans.
However, its performance also deteriorated recently, so much that it necessitated the appointment of an observer by the central bank.
Owing to various scams, BASIC Bank’s capital shortfall at the end of September stood at Tk 597 crore and its capital adequacy ratio an alarming 3.79 percent.
The specialised bank has sought funds from the government to meet its capital shortfall, but a high official of the finance ministry’s banking division said they have no plans to respond to the request.