Rupali Bank sell-off in national interest?

With the plausible excuse that the World Bank and IMF want the government to privatize the four nationalized commercial banks (NCBs), the government appointed PriceWaterhouse Cooper (PWC), which is basically an accounting firm with an influential local agent, as the consultant to prepare the NCBs for privatization.

Bangladesh has more knowledgeable bankers than PWC can provide. PWC, which had to pay $5 million to settle charges brought against it by the SEC in USA for wrong-doing, was given the consulting job, reportedly for about Tk 100 crore.

Ironically, this company finally engaged some local bankers. Spending foreign exchange for the consulting job is naturally questionable because our people can do it much better, once the government decides for reform, that is.

The government could easily sell off Rupali Bank shares through the stock exchange because it is a listed public limited company, but it went for tender through the Privatization Commission. The Bangladesh Board of Investment (BOI) dubbed the bank share sale to a foreign party as a Foreign Direct Investment (FDI). Both, the Privatization Commission and BOI are under the PMO, and their decisions involve the prime minister, whereas the decision to sell 67.26% of government shares involved the Ministry of Finance and the Bangladesh Bank.

The decisions to hire a foreign consultant and to sell 67.26% government shares through tender to a foreign private individual investor were not necessarily in the interest of the country which has less than $500 per capita GDP. It is not creating any employment; rather it is poised to drastically cut existing employment. Banking is a service sector of semi-public nature and not a manufacturing sector involving higher technology, nor it is a heavy capital-intensive sector beyond our immediate capacity.

We need comprehensive reforms in banking, monetary policy, exchange rate improvement, interest rate regime suited for industrialization, loan budgeting system, formation of nationalized banking holding company, etc before we allow any kind of foreign investment in financial institutions. An amount of $330 million is peanuts for a nation. Moreover, nationalized banks provide important leeway to the government for promoting industrialization at the early stages.

To further justify the sale, the bank was not being repaid the loans by public corporations and state-owned enterprises (SOEs). As of June 30, Rupali Bank's total classified loans reached Tk 867 crore, 20 percent of the bank's total outstanding loans.

If the government is not bankrupt, the public corporations and SOEs cannot be defaulters, unless the Ministry of Finance deliberately acts improperly. The responsibility of Bangladesh Bank and the Ministry of Finance is to see that NCBs function properly and are profitable, without making loss the reason for fabricating an excuse for privatization prematurely and in a hurry.

No government is supposed to sell out state property to foreigners for the self-interest of some quarters. Banking is a service, which we are capable of providing in foreign countries, if we are allowed to.

In an EGM, the private shareholders of Rupali Bank went on a rampage, protesting the proposal of amendment of its articles of association on privatizing the bank. Police reportedly baton-charged the shareholders. The shareholders were against the sell-out move and got a High Court decree asking the Privatization Commission to stop the process. The Privatization Commission secured a Supreme Court stay order for a week.

The Privatization Commission chairman intended to bulldoze the whole deal before he had to leave office by November 15. There was hoodwinking with prospects of large investment in human resource development, recapitalization and buying up of the remaining government share of 26% for $134 million at about Tk 2700 per share, etc.

Due to objection by some officials regarding responsibility and liability of bad debts and classified loans of Tk 867 crore, retirement pension, transfer of ownership of Rupali Bank headquarter building, etc the deal could not be signed before November 15. The Privatization Commission is now searching for an opportunity to make the deal some how by the end of the year.

The question is not money; it is the protection of national interest first. Rupali Bank has over 493 branches. The worth of the bank was estimated at $1.07 billion as of December 31, 2005. It is common practice all over the world to restrict foreign investment in banking. We have experience of the difficulties we have to face to open even a branch of a bank in a foreign country. We have to think seriously about not entering into any premature deal against national interest, or to embitter our relations someday by canceling an undesirable sale contract with Saudi Arabia.

We may sell up to, say, 10% of the share every six months through the Stock Exchange, restricting foreign investment to, say, 10% in total. We may float convertible bonds in foreign exchange for expatriate Bangladeshis, if so required to meet foreign exchange needs and satisfy capital adequacy conditions. We may encourage Saudi investors to invest in petroleum refineries, automobile manufacturing, steel plants, Bangladesh Biman to some extent, and other capital-intensive projects.

Now the government must urgently review the Rupali Bank share sale process before great irreversible damage is done. It is reported that railway land is also being leased (long-term) to Hilton Hotel, which will build about 50 luxury apartments. We cannot arbitrarily sell our land like this without offering the opportunity to our own people for genuine purposes. The administration must keep vigilance on unscrupulous sell-out spree by vested interests with power, to safeguard our national interest.

All these cannot be justified by wrapping them in the cover of FDI. All FDIs are not necessarily in the interest of the country. They need be evaluated from our national perspective and long-term vision. Let us hope we make the right and educated decision for protecting vital long-term national interests.

Dr Mustafizur Rahman is a freelance contributor to The Daily Star.