Adopt action plan for four SoCBs to meet capital shortfalls

Bangladesh Bank (BB) has suggested the government adopt time-bound action plan for four state-owned commercial banks (SoCBs) to meet their existing capital shortfalls and make them operationally sound, officials said.

It has also recommended considering to set a specific target under the performance indicators in the annual performance agreement (APA) to control the operational costs of the state-run banks.

The central bank has recently put forward the suggestions to financial institutions division (FID) for implementing them under the APA, a source concerned said.

As of December 2019, the capital shortfall of the four SoCBs was Tk 981.65 billion, the BB data showed.

The bank's regulator has mentioned more suggestions on loan disbursement, recovery, and other indicators for the CEOs (chief executive officers)/MDs (managing directors) of the SoCBs according to its memorandum of understanding (MoU) and the government's APA.

The credit growth rate of the banks should be set in line with the deposit growth rate, the central bank suggested.

The BB viewed to lower the target of loan and advance for Janata, Agrani and Rupali banks than their deposit target in the next APA.

The existing capital of the four SoCBs is now in fragile condition. As a result, risk-based wealth has increased, it said.

It also suggested imposing required conditions to control risks as much as possible during disbursement of new loans so that capital adequacy of the banks remains good.

It recommended that the government should take into account involvement of CEOs/MDs in any forgeries or anomalies which were proven by the central bank during their performance evaluations.

The BB advocated to continue putting pressure on the four banks to increase the recovery target rate of writ of loans.

When contacted, Additional Secretary of Financial Institutions Division (FID) A.B.M Ruhul Azad who deals with the APA issue declined to make any comment in this regard.

A senior official of FID said the timeframe, different targets and other relevant issues for the last quarter of fiscal year (FY) 2019-20 have already been relaxed due to the spread of Covid-19.

APAs between the SoCBs and the government agency concerned for the FY 2020-21 are likely to be signed by this month, he added.

When contacted, managing director and CEO of Agrani Bank Mohammad Shams-Ul Islam said, "We have sent our APA to the ministry concerned that is in now final stage for signing."

"We have tried to set workable and achievable targets during ongoing and post-Covid-19 period," he added.

According to the APA, the deposit growth was set at 2.0 per cent for Sonali, 8.0 per cent for Janata, 25 per cent for Agrani and 16 for Rupali banks in the FY '20, an FID source said.

The deposit growth has been projected 4.0 per cent, 7.0 per cent, 18 per cent and 15 per cent for Sonali, Janata, Agrani and Rupali banks respectively for FY '21, he added.

The credit growth rate was 10 per cent for Sonali, 9 per cent for Janata, 16 per cent for Agrani and 18 per cent for Rupali banks, he also said.

The loan growth rate has been projected 9.0 per cent, 5.0 per cent, 13 per cent and 18 per cent for Sonali, Janata, Agrani and Rupali banks respectively for FY '21, he mentioned.

On other hand, the NPLs reduction target has been projected 22 per cent for Sonali, 47 per cent for Janata, 20 per cent for Agrani and 20 per cent for Rupali banks for their existing NPLs in the FY '21.

The reduction target of NPL for FYs '20 and '21 has been calculated against the NPLs of 2019, a FID official said.

The volume of non-performing loans was Tk 943.31 billion as of December 31, 2020.

It was Tk 1,162.88 billion three months before, according to the central bank's statistics.

Of the volume, the total amount of defaulted loans with the four banks was Tk 416.07 billion in the Q4.

The recovery target of NPLs under MoU was 25 per cent from the total volume of such loans of the SoCBS each for the calendar year 2019.

Of the targets, the recovery rate of NPLs was very poor or 1.57 per cent by Rupali Bank against its target under the MoU.

Only 13.60 per cent, 19.69 per cent, 14.55 per cent and 3.0 per cent have been recovered by Sonali, Janata and Agrani banks respectively against their respective targets.

Besides, the cash recovery of NPLs by the four banks was negligible amount in 2019, according to the BB.

According the MoU, capital to risk weighted asset ratio were only 0.48 per cent in Sonali Bank, 5.62 per cent in Janata Bank, 7.0 per cent in Agrani Bank and 9.20 per cent in Rupali Bank as of December, 2019.

In the context of loan growth, the BB also suggested imposing conditions to achieve the target of farm and SME loans set by the central bank in the APA.

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