Performance to decide incentive bonuses at state-owned banks

State-run commercial banks, specialised banks and financial institutions will no longer be able to hand out incentive bonuses at will. From now on, bonuses will be tied to net profit rather than operating profit, according to a finance ministry circular issued yesterday.

The government has released a detailed guideline for performance-based bonuses for 14 banks and financial institutions.

The Financial Institutions Division (FID) of the finance ministry said net profit would be calculated after deducting provisions for loans and advances, changes in investment value and losses on other assets from operating profit.

The new rules will also apply retrospectively to incentive bonuses for 2024. Any payment outside the guidelines will require prior approval from the FID.

Regarding the incentive bonus, there was a policy previously. But some state banks largely ignored it.

Despite a limit of three incentive bonuses, several banks awarded as many as five in 2023. The FID ordered those banks to recover the extra payments from staff, but the money was never returned.

The new rules will also apply retrospectively to incentive bonuses for 2024. Any payment outside the guidelines will require prior approval from the FID

Six state-owned commercial banks -- Sonali Bank, Agrani Bank, Janata Bank, Rupali Bank, BASIC Bank and Bangladesh Development Bank (BDBL) -- will now distribute bonuses using five performance indicators: net profit ratio against working capital, growth in deposits, growth in loans and advances, recovery rate of non-performing loans (NPLs) and recovery of written-off loans.

Net profit ratio will carry the most weight, worth more than 60 marks, while each of the remaining four indicators will carry 10 marks.

The total marks will determine the size of the bonus. The stronger the performance, the higher the award. Staff may receive up to three bonuses, each equal to one month of basic pay. Poor performance could mean no bonus at all.

For six specialised banks -- Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), Karmasangsthan Bank, Palli Sanchay Bank, Probashi Kallyan Bank and Ansar-VDP Unnayan Bank -- the calculation will differ slightly.

For them, deposit growth will not be considered.

Instead, bonuses will be based on four factors: net profit ratio against working capital, growth in loans and advances, recovery of NPLs and recovery of written-off loans.

Here, the net profit ratio will carry the highest 50 marks. Recovery from written-off loans and raising deposits will each carry 15 marks, while recovery from classified loans and lending will each carry 10 marks.

For the Investment Corporation of Bangladesh (ICB), a new performance measure, which is growth in capital market transactions, will be added, along with net profit, dividends from investments and recovery of NPLs.

Bonuses will be calculated on the basis of an employee's basic pay in the final month of the accounting year. Newly appointed officials will only be eligible if they have completed at least six months of service.