The bank division of the Finance Ministry has sought Tk6,000 crore allocation in the upcoming budget for recapitalisation of the four state-owned banks.

The division has sought 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 in Bangladesh – Sonali, Janata, Agrani and Rupali – 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.

He also said a negotiation had been going on with the Finance Division regarding the amount to be allocated in the coming budget for the purpose.

In September last year, the Finance Division once disbursed Tk4,100 crore to the state-owned banks so that they could address capital inadequacies. At the time, the aggregate capital shortfall of the four banks was over Tk8,000 core.

A senior official said the Finance Division needed to first know how well the banks had used that allocation before it could approve further funds.

According to sources in the Bangladesh Bank, in December last year, capital shortfall of Sonali Bank stood at Tk249 crore, Rupali Tk107 crore, Janata Tk404 crore and Agrani Tk92 crore.

The central bank has not audited the four banks since then, but an official said these banks might turn out to be Tk7,000 crore short of capital in the next audit.

In the audit, the banks need to show, among other things, impressive performance in reducing non-performing and default loans in order to get further recapitalisation allocations.

A recent study of the Business Monitor International, a London-based research firm, said Bangladesh’s banking sector was “seriously vulnerable to economic shocks” mainly because of the poor performance of the state-owned banks.

“The state banks had racked up a large amount of non-performing loans on their books, creating a flaw in the banking system,” said the study titled Bangladesh Commercial Banking Report 2014.

As of September 2013, the gross non-performing loan (NPL) ratio of state banks stood at 28.8%, up from 11.3% in 2011 and 23.9%in 2012.

On December 31 last year, the amount of default loans at the state banks was Tk16,606 crore or 19.76%of their outstanding loans, according to the Bangladesh Bank.

NPLs are sums of borrowed money for which debtors have not made scheduled payments for at least 90 days. A non-performing loan is either in default or close to being in default.

Dr Sadiq Ahmed, vice-chairman of the Policy Research Institute, slammed the government for the policy.

“Without first fixing the reasons for the deterioration in the portfolio of the state banks, simply providing funds from the treasury to beef up their capital base is equivalent to putting bandage on a cancerous wound,” he said.