When private banks have been struggling to reduce operational costs by improving efficiency under the pressure of the lending rate cap, the central bank has come up with a new salary structure advocating for paying equally even in case of inefficient employees.
Experts fear this will wreak havoc on the banking sector.
In a circular issued on 20 January, the Bangladesh Bank asked banks not to deprive their employees of promotion even if they fail to achieve business targets.
It also said banks cannot fire employees on the grounds of inefficiency or force them to resign. The central bank also asked banks not to set business targets for employees.
Industry experts said the central bank circular is encouraging banks to treat both efficient and inefficient employees equally instead of incentivising skilled manpower – which will have a severe impact on the banking business.
In the private sector, incentives come through performance resulting in different salary structures for the same post.
However, the Bangladesh Bank asked banks not to consider the performance in case of annual increment.
Banks cannot set the condition of fulfilling the deposit collection target in case of making a job permanent or for a salary increase, according to the circular.
The salary structure of the Bangladesh Bank is completely unacceptable as it conflicts with the motto of the private sector businesses, said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).
She said the main objective of the private sector is profit-making. This also creates employment and generates income for the people.
The private sector can make a profit and be competitive only when the efficiency and productivity of the sector is thriving.
Fahmida said the criteria for efficiency are mandatory here, adding that a big question was why Bangladesh Bank did not want a competitive environment.
"If banks run with inefficient bankers, it will hamper profitability. The public sector is more cost-effective here but people go to the private sector for their competitiveness. And the private sector employees are also getting a competitive salary. So, performance is mandatory here, and the regulator's instruction is not logical."
She said the central bank should look into the irregularities and other loopholes of the banking sector instead of interfering with the salary structure.
Different banks have different salary structures based on financial performance. Even top bankers get salaries based on the business they bring for directors.
For instance, Eastern Bank, one of the top profit-making banks, paid the highest to its top executive while AB Bank, one of the poor performers due to a loan scandal, paid the lowest to its top executive in 2019.
The salary difference between the top executives of the two banks was five times that year.
As profit making is a collective effort, the banks pay their staff according to their performance, said a senior executive of a private bank.
He said the new circular will discourage good performers as banks were asked to treat both efficient and inefficient workers equally in terms of incentives.
He said that banks' profit came under pressure after implementing a lending rate cap from 1 April 2020. Amid this situation, banks are trying to improve operational efficiency through tech investment and reducing per head cost. Under this circumstance, the new salary circular will put another pressure on the banks.
On the other hand, the new circular is also contradictory to the central bank's own spirit.
The Bangladesh Bank sent a letter to the Financial Institutions Division of the finance ministry last year, raising objections over incentive bonuses given by state banks even while making losses.
In the letter, the central bank said that despite huge losses, the worst-performing state banks have been spending huge amounts of public money on incentive bonuses to reward their employees.
The letter alluded to rewarding employees based on performance.
Industry experts say that the entry level salary that the Bangladesh Bank has set at Tk39,000 for private bankers is very logical, but the other instructions relating to performance may fail to be implemented.
The wide gap in salaries between lower level and higher level employees had prompted the central bank to interfere in the pay structure of private banks. The entry level salary amount will reduce the gap, experts told The Business Standard.
However, they object to the interference in the salary of support staff.
When a garment worker gets a minimum salary of Tk8,000, the central bank has set a minimum salary for support staff at Tk24,000.
Usually banks recruit support staff through third parties and in that case banks were instructed to follow the salary structure.
However, the central bank itself could not ensure the salary structure for its own support staff which were supplied by a third party recruiting agency.
For instance, a support staff who was recruited through a third party for working in the Bangladesh Bank now gets Tk17,600 after 10 years of service. He started his job in the central bank at Tk5,000 only.
The new salary circular also irked bankers and their association ABB (Association of Bankers Bangladesh) is now analysing the impact of the new pay structure. The organisation is planning to sit with the central bank over the circular after completing the analysis.
Contacted, Selim RF Hussain, the managing director and also the chairman of ABB, said, "The ABB has asked all banks to conduct an impact analysis to determine what the incremental cost will be for the banking industry in 2022. Once that analysis is completed, we will be in a better position to provide a formal response."