Tk5,000 crore bailout planned for state banks

Banks need to implement credit risk reforms to avail the package
BBank

The Bank and Financial Institutions Division of the Finance Ministry is reviewing a three-year plan for state owned banks, especially the scam-hit BASIC Bank, as the government decides to disburse Tk5,000 crore to meet their capital shortfalls during the current fiscal year.

In line with the International Monetary Fund’s conditions tagged with loans under the Extended Credit Facility, the government has decided to meet the shortfalls in two phases.

As the banks are facing huge capital shortfalls due to various scams last year, the IMF set a condition that public money will be injected into the banks only if they go through drastic reforms.

The state banks need to fulfil their capital shortfalls on condition that they will implement their credit risk-related reforms, said an official of the bank division.

The division also asked the Bangladesh Bank to conduct field-level inspections to the state-owned banks for getting an idea of their previous business plans, which had started from 2008, according to the official.

Deputy Secretary Md Motiur Rahman on Thursday sent a letter to the managing directors of the state-owned banks, requesting them to hold a coordination meeting to review the progress made in the previous three-year bailout package fund plan and the package.

The decision to hold the coordination meeting and conduct field-level inspection was made at a meeting  of the bank division on April 16.

The meeting, presided over by Additional Secretary Amalendu Mukherjee, also discussed proposals placed by Agrani Bank and Rupali Bank regarding the three-year business plan and how the capital shortfall problem would be addressed.

Joint Secretary Gokul Chand Das said the central would give its opinion on the six policies proposed by state-owned Agrani and Rupali. The policies include loan review policy, liquidity risk management policy and internal control policy.

Amalendu Mukherjee indicated that the state-owned banks were able to implement several indicators and business plans between 2008 and 2010.

“It is essential to see the progress made in implementing the business plans undertaken by the state-owned banks,” he pointed out.

According to sources, the meeting also discussed major scams like Hall-Mark in Sonali Bank and BASIC Bank and opined that such scams could have been averted only if the authorities concerned had strictly monitored the business plans and indicators and their respective targets of the state-owned banks.

Deputy Director of Bangladesh Bank Firoz Mahmud Islam said: “We are not sure whether the state owned banks executed business plans without any field inspection.

“The government has no other viable options for strengthening the state-owned banks unless it injected public money to meet the capital shortfall,” Mamun Rashid, a business professor and financial sector entrepreneur told the Dhaka Tribune.

On March 31, four state banks’ combined capital deficit stood at Tk241 crore, mainly due to Sonali Bank and Rupali Bank, which ran deficits of Tk278 crore and Tk277 crore respectively. Agrani Bank and Janata Bank, however, had surpluses of Tk147 crore and Tk169 crore.

The four banks’ capital deficit looks more alarming when their capital base at the end of December 2013 is taken into account as they had a combined surplus of Tk855 crore.

The trouble riddled Basic Bank’s capital shortfall stood at Tk1,037 crore at the end of March this year while it was Tk1,372 crore at the end of 2013.

In 2013, BASIC Bank’s shortfall was only Tk3.34 crore. During the last fiscal year, the government injected Tk4,100 crore into the four state-owned commercial banks to help them meet their capital shortfalls on condition that the banks would go through credit risk-related reforms.

Sonali Bank received Tk1,995 crore, Agrani Bank Tk1,081 crore, Janata Bank Tk814 crore and Rupali Bank Tk210 crore.

The amount came in the first phase of a bailout package of the government against the banks’ total capital shortfall of Tk8,863 crore as of September as per an estimate of the central bank last year.

According to the World Bank, the four banks’ capital shortfall was Tk 17,600 crore last year.

Source: Dhaka Tribune

1 COMMENT

  1. What about the plundered money from those banks? Is that a boon for the pro-power party swindlers? Is Mr. Muhit ready or capable to bring back the money siphoned out of the country by his near and dear ones in politics? Very, very doubtful indeed.

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