Bangladesh
6 years ago

Capital shortfall swells to Tk 200b

Recap of public banks again on the cards

SoBs seek to realise commission on services they provide on behalf of govt

Internet photo used for representation.
Internet photo used for representation.

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The government again moves to give funds for recapitalisation of state-owned banks (SoBs), officials said, amid criticisms from economists about sending public money "down the drain".

The financial institutions division (FID), under the ministry of finance (MoF), convened Wednesday a meeting attended by managing directors of SoBs and representative of Bangladesh Bank. Secretary of the financial institutions division Eunusur Rahman chaired the meeting.

Until last September, the state-run commercial and specialised banks had a combined capital shortage of nearly Tk 150 billion, which, officials said, got bloated to Tk 200 billion by now.

The government had earmarked Tk 20 billion as budgetary allocation to recapitalise the banks in need. The Basel-III regulatory framework has raised capital-adequacy requirement for banks, which most SoBs fall short of.

Sources present at the meeting told the FE that the bank bosses requested the government to provide the funds as capital inadequacy hampers their business.

To justify their plea for the bailout, some of the chief executives told the meeting that they provide nearly 40 types of services to people on behalf of government without charging any fees.

If the government allows them to charge at least 1.0 per cent commission on the services, the banks can earn a significant amount of money which can help them replenish their capital to some extent, they said.

The meeting thus decided that the central bank will prepare a guideline to this effect and the MoF will take decision after scrutinising the modality.

An official of the FID said the SoBs were asked to submit their work plan as to how they will improve their financial health after getting capital from government coffers.

"After receiving their work plans we will check those and decide next course of action," he told the FE.

He pointed out that the budgetary allocation of Tk 20 billion is a peanut as the banks need nearly Tk 200 billion. "We are in real dilemma how to split such a small amount against the big requirements."

Contacted over telephone, FID secretary Mr Rahman told the FE that they discussed financial conditions of the banks.

He said no concrete decision was taken at the meeting regarding providing capital to the banks, since it needs decision from higher authority.

Data until last September show that Sonali Bank suffered capital inadequacy worth Tk 31.40 billion, BASIC bank Tk 25.23 billion, Janata Bank Tk 12.73 billion, and Rupali Bank Tk 6.60 billion.

Besides, Bangladesh Krishi Bank has capital shortage of Tk 75.40 billion and Rajshahi Krishi Unnayan Bank needs Tk 7.42 billion for recapitalisation.

Commenting on recapitalisation of SoBs, former governor of the central bank Dr Salehuddin Ahmed told the FE earlier the draining of public money in the name of bank recapitalisation was not fair.

"They do not have any attempt to recover the loans and the money looted from the banks. The bankers wait for easy money from public exchequer without performing duty properly," he said.

"It looks like government is pouring water into pipeline and bankers are taking those out from taps," Mr Ahmed said in metaphorical terms about recurrent recapitalisation of the state banks.

He said the government should take tough stance and ask the bankers to recover the bad loans first to get any help from the exchequer.

"Through this process of pumping money into the banks, government's liabilities are increasing day by day," he said, adding: "I am not in favour of recapitalisation anyway."

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