International Monetary Fund (IMF) has set three new conditions for four state-owned commercial banks under the extended credit facility loans.
The conditions include restoration of capital position, full recovery of defaulted loans from state-run enterprises and automation of system by March 2014.
An IMF staff report released recently said the conditions come as the banks’ financial performance has deteriorated along with the Hall-Mark and Bismillah scams.
Bangladesh Bank conducted a diagnosis of Bangladesh’s state-owned commercial banks. On the basis of the diagnosis, the global lender set those conditions.
The central bank examination of state-owned banks found significant weaknesses in asset quality, liquidity management, and internal audit control.
The state-owned commercial banks are Sonali, Janata, Agrani and Rupali banks.
As per the first condition, IMF has asked to recapitalise the banks to restore their capital position in line with the regulatory standards set under the revised memoranda of understanding signed between Bangladesh Bank and four state-owned commercial banks.
The second condition has set time limit for the banks to bring automation system by March 2014 as the global lender says automation reduces operational costs and risks of corruption.
According to the third condition, finance ministry will have to repay all defaulted loans of state-run enterprises.
The state-owned enterprises had Tk2,400 crore in default as of September 2013.
In diagnosis, Bangladesh Bank found 13 shortfalls of the banks. The shortfalls include, among others, problematic loans not getting bank officials’ attention, insufficient control over lending activities at branches, inadequate internal control and absence of an independent internal audit system.
Last week, a finance ministry meeting decided to revise the banks’ recapitalisation proposals. After revision of proposals, the banking division will disburse Tk4,100 crore.
The high officials of the state-owned banks said some of the amount will be used for automation.
The central bank last week sent business plans of the banks to banking division, said a finance ministry official. The credit risk management policy is a major component of the plan, he added.
In the first phase, the government will give four state-run banks Tk4,100 crore against their capital shortfall of Tk8,863 crore.
In line with Bangladesh Bank’s recommendations, Sonali Bank will receive around Tk 1,200 crore and Agrani Bank Tk800 crore.
But Janata and Rupali banks will get funds next year, the official said.
Sonali and Agrani banks drew a sector-wise credit growth plan in their credit risk management policy, according to the business plans of the banks.
Sonali Bank showed that its highest credit growth would not exceed 8% in the trading sector and 2% in the industrial sector.
In line with the IMF’s conditions tagged with loans under its ECF, the government has taken initiatives to meet the capital shortfall of the banks in two phases.
The government also apprised the IMF of the reforms, said an official source.
