Illogical capital injection  

The country's banking sector has been hitting the newspaper headlines for quite some time, mostly for wrong reasons. The sector is being jolted by scams, one after another. It all started with the Hall-Mark loan scam that took a heavy toll on the largest public sector bank--Sonali Bank. Since then the sector turned out to be a mine of irregularities involving loans and lenders.

Farmers Bank Limited (FBL), a fourth generation commercial bank, is one such lender that is in deep trouble. One or two private banks had been in trouble in the past. But no bank did face difficulties the way the FBL is facing now, that too only four years after its inception. Media reports say that the bank is not being able to pay back the large deposits and even the value added tax (VAT) to the National Board of Revenue (NBR). The selection of wrong borrowers and management problems are blamed for the current state of the FBL.

As the bank sank into deeper troubles, its founder chairman resigned and the top management was also restructured by the central bank. But the bank is now facing severe liquidity crisis and what it now needs most is the injection of substantial amount of fund.

If not anyone else, some state-owned banks, led by the Investment Corporation of Bangladesh (ICB), are reportedly planning to make available equity to the trouble-torn FBL. The amount is sizeable --Tk11 billion.  Of the amount, almost half would come from the ICB, a sponsor equity holder of the FBL, and the rest from three banks---Sonali, Janata and Agrani.

The move to make available funds by the state-owned banks and investment institution to a troubled private bank has come as a surprise to many. There is a growing suspicion that the move is an engineered one by powerful quarters to salvage the sinking bank.

The employees of the ICB are strongly opposed to any decision to inject any further equity into the FBL. They have already staged protest demonstrations in this connection. A meeting of the ICB board of directors, convened to discuss the FBL equity issue on February 06 last, was suspended halfway following protest demonstration by the workers union.

Moreover, why should the state-owned banks think of making available equity to some other institution when they are troubled by identical problem? The overall capital shortfall of these banks was estimated at nearly Tk 70 billion at the end of September last.

The government has been injecting capital into the public sector banks almost without any pause. In the national budget, the government earmarks a sizeable amount of money every year --Tk 20 billion this fiscal--- for replenishing capital of these banks. The main reason for capital shortfall is the rising burden of classified loans. The provisioning requirement has been eroding the capital of these banks as it has happened in the case of FBL.

What is the logic behind the state-owned banks to replenish capital of a troubled private bank when they themselves are deficient in capital and need taxpayers' money for beefing up their own capital?

The government is the owner of the ICB and the banks that are trying to make available capital to the FBL. So, it is the responsibility of the Ministry of Finance to look into the issue and do the needful. 

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