Photo : Messenger
Several private banks in the country have given incentives to their officers and employees in the new year although these banks are at present grappling with an acute liquidity crisis, leading to a situation where they are seeking financial assistance from Bangladesh Bank (BB) without providing any collateral.
Sources in banking sector revealed that the banks in question provided incentives to their staff at the onset of 2024. These incentives, equating to an amount matching their basic salaries, were disbursed as bonuses, depending on internal policy of the respective banks despite the deplorable financial state of these banks as highlighted in the BB reports, which sparked discussion within the banking arena as to how these banks managed to afford such substantial bonuses for their staff.
Typically, banks secure loans from the central bank by pledging bonds or other assets. However, due to the absence of such assets, these banks are resorting to borrowing through the issuance of promissory notes.
It is said that banks that have taken loans from Bangladesh Bank (last lender resort) are prohibited from giving loans.
Speaking on condition of anonymity to The Daily Messenger, a top BB official shared insights, stating, "The primary motive behind the bonuses distributed by these banks is likely aimed at evading government taxes. The government is obligated to levy taxes based on Earnings Before Income Tax (EBIT). By disbursing bonuses towards the end of the fiscal year, banks could potentially understate their profits, leading to tax rebates. Moreover, while these incentives offer a morale boost to bank employees, this discrepancy in bonus payments poses challenges for banks that have opted not to distribute bonuses to their staff."
He further elaborated, “The act of resorting to loans as a final measure reflects the financial stability of the bank. This strategic move aims to prevent a decline in the bank's share price while also bolstering the bank's equity in the market, thereby cultivating a favourable public image."
Asked regarding the matter, the managing director of a prominent private bank, speaking on the condition of anonymity to The Daily Messenger, said, "We have recently concluded our half-yearly financial assessment. Following a comprehensive analysis of the bank's overall performance, we will make a decision regarding the distribution of bonuses. It is possible that banks that swiftly issued bonuses at the start of the year may have rushed their calculations. I am uncertain how banks facing liquidity crises or financial issues and resorting to borrowing from the central bank are managing to provide bonuses to their employees. However, for banks faring well in such circumstances, the bonus payments may be scheduled for a later date.”
The managing director continued, stating, "We are familiar with our workforce, and they are aware that bonuses will be provided, even if delayed. However, the prevalent issue of bonuses is fostering an unhealthy competitive environment within the banking sector. Ultimately, this competition may not bode well for the overall health of the banks involved."
Sources indicate that on the first day of the year, banks such as Islami Bank, First Security Islami Bank, Social Islami Bank, Union Bank, Jamuna Bank, and Global Islami Bank disbursed incentives to their employees. Representatives from these banks have expressed opinions suggesting that this initiative will likely elevate the pace and efficiency of work among their employees.
When approached for comment, the managing directors of the banks that had provided bonuses declined to offer any statements.
However, a managing director from another bank, speaking anonymously to The Daily Messenger, remarked, "Recently, there have been unfavourable articles circulating in newspapers regarding multiple banks. This negative publicity has had an adverse effect on the morale of bank employees. By disbursing bonuses originating from these institutions, efforts were made to bolster the confidence and motivation of the bank's workforce. Nevertheless, there are no explicit regulations prohibiting the provision of bonuses while in debt. It's crucial that the loan amount be repaid to the lender expeditiously. Any potential misconduct concerning the loan will likely be scrutinised by the Bangladesh Bank."
Economist Dr. Zahid Hussain expressed concern over the scenario where banks in crisis are obtaining loans while simultaneously providing bonuses to their employees. Speaking to The Daily Messenger, the former head of the World Bank's Dhaka office highlighted, "Banks resorting to loans to mitigate liquidity issues might not benefit from providing bonuses if their financial health remains precarious. This approach could potentially lead to long-term losses for the banks. To the best of my knowledge, reputable banks typically prioritise merit-based incentives for their employees. Bonuses are usually awarded to high-performing officers. However, banks facing crises and still granting bonuses may not be adhering to performance-based criteria."
Economic affairs analyst Md. Mazadul Hoque drew attention to a concerning trend, likening the country's strategy of repaying foreign loans by acquiring new loans from abroad to the current practice within the banking sector.
Hoque noted that banks, akin to this national strategy, are acquiring loans from the Bangladesh Bank (BB) and utilising these funds to provide bonuses to their officials. This practice, observed predominantly among financially unstable banks, involves persuading regulators and boards to secure these loans. However, Hoque expressed apprehension about the potential long-term ramifications, suggesting that this approach might not augur well for the banks' stability and financial health in the future.
Responding to these concerns, Executive Director and Spokesperson of the Bangladesh Bank, Md. Mezbaul Haque, conveyed to The Daily Messenger, “The overall assessment of a bank's situation cannot be based solely on one aspect. Banks providing bonuses are doing so in accordance with their respective policies. It's plausible that those currently not offering bonuses may consider doing so at a later time. Bangladesh Bank does not directly intervene in these matters. However, we are committed to ensuring the responsible utilisation of liquidity facilities extended by the central bank and will monitor to prevent any misuse."
Messenger/Disha
