World Bank wants even-playing field for privatised banks

The World Bank (WB) has asked the government not to convey public sector related business to the privatised banks and let them start their operations on a level playing field.
"The government-related business should not be conveyed to the privatised banks as it is important that the bank begins its operation on a level playing field," the World Bank suggested in an Aide-memoire on Banking Sector Development Policy Credit.
To ensure that the banking sector privatisation runs smoothly, it is important to have government ownership of the initiative. Setting conditions alone would not serve the purpose as the government can comply with the letter than the spirit of the agreement, the Bank added.
The World Bank said that for smooth transaction from a nationalised to privatised bank, it was a good practice for the public sector banks to undergo cost and operational restructuring before privatisation.
The World Bank apparently was not happy with the prevalent culture in the public sector banks, and stressed the need for change in mental approach of the employees before privatisation.
"The cultural change in the organisation must be inculcated before privatisation. The seeds for the new corporate culture should be sown prior to handing over the bank to the new owners," WB further suggested.
It is important that a public sector bank is recapitalised before privatisation to make it able to meet the central bank''s minimum capital requirements. Under no circumstances should the supervisory role allow regulatory forbearance for the newly privatised bank, WB added.
The WB observed that the government could expect higher bids from the bank sale if the payment for the bank''s shares was injected right back into the bank rather than given to the government as consideration for its existing shares in the bank.
"The privatisation of Allied Bank Limited (ABL) was structured in such a way that the entire proceeds from the bank sale went into the recapitalisation and restructuring of the bank''s balance sheets. The shares were sold at a premium of Rs 33.7 per share over par value or 337 percent," WB said.
The Bank further said that enhanced regulatory and supervisory capacity in SBP serves to improve the efficiency of the banks and enhances competition among them, but added that foreign banks should be treated with similar regulations which are being applied to the National Bank of Pakistan (NBP).
"Foreign banks and NBP, which is still majority government-owned, should be subject to the same regulations as domestic private banks, creating a level playing field in the banking sector," the WB advised.
The benefits to the government in the form of higher value of the shares in a privatised bank and the boarder range of financial products at competitive prices arising from the more healthy and competitive banking sector usually offset part of the restructuring costs, the World Bank opined.