Asif Showkat Kallol

In a bid to recapitalise four ailing state-owned banks, the government has decided to set aside Tk5,000 crore for the next fiscal year as per a recommendation by the International Monetary Fund under its extended credit facility (ECF) programme.

Seeking anonymity, a senior official of the Finance Division who is involved with budget preparations, said the government had no choice but to allocate the funds in the next budget as they were concerned about the financial health of four state-owned commercial banks in Bangladesh – Sonali, Janata, Agrani and Rupali.

The government gave Tk4,100 crore to the four banks in the outgoing fiscal year to help the banking sector recover from the setbacks caused by the Hall-Mark and Bismillah group scams, the official said.

Sources said the Finance Division would allocate the Tk5,000 crore only after reviewing whether the state-owned commercial banks had made substantial progress regarding an agreement with the central bank that had granted the previous Tk4,100 crore allocation.

The Finance Division would hold a meeting with the Bangladesh Bank to review the matter following the budget announcement, the sources added.  

In April, the International Monetary Fund (IMF) asked the government to put aside Tk5,000 crore in the upcoming budget as capital for the four state-owned banks.

In its fifth review of the ECF, the IMF suggested that Tk1,500 crore of the total amount should be dispatched to the four banks by December this year and the rest by June 2015.

The multilateral lender, however, has instructed that certain conditions be tagged with the handout, so that the four banks are obligated to improve their performance and automate their branches by 2016.

The move comes after the IMF forecasted that the four banks’ capital position would deteriorate fast in the coming fiscal year, even though they have a capital surplus of Tk855 crore, according to the latest available data from December 31 last year.

According to Bangladesh Bank, the loan provision surplus of Sonali Bank and Janata Bank stood at Tk80.98 crore and Tk204.80 respectively at the end of March; the loan deficit of Rupali Bank stood at Tk319.92 crore; while Agrani Bank had no surplus or deficit provision of credit.

The banks’ capital position would run into a deficit for several issues, including the expiry of the central bank’s relaxed loan rescheduling policy in June, provisioning requirements for impending classified loans, and the shift in July to BASEL III standard which requires higher capital adequacy.

Meanwhile, the Bank Division of the Finance Ministry had sought Tk6,000 crore allocation in the upcoming budget for recapitalisation of the four state-owned banks, as well as seeking Tk700 crore for the same purpose for the state-owned specialised banks.

M Aslam Alam, secretary of the Bank and Financial Institutions Division, told the Dhaka Tribune that the four government banks needed more capital in the next fiscal year in line with Basel II.

Basel II, published in 2004, is an accord that intends to create an international standard for banking regulators to control how much capital banks need to put aside to guard against risks.

The four state-owned commercial banks are said to have been robbed off their safe footing by major scams such as those staged by the Hall-Mark and Bismillah groups.

“The balance sheets of the state banks should be streamlined in order to ensure their survival... The development partners think that the state banks may collapse because of capital shortfall. So, they want to see recapitalisation in steps,” the secretary said.

News:Dhaka Tribune/21-May-2014