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Experts warn against investing in Farmers Bank

  • Published at 01:30 am February 13th, 2018
  • Last updated at 01:32 am February 13th, 2018
Experts warn against investing in Farmers Bank
Experts have discouraged state-owned banks and financial institutions from investing in Farmers Bank Limited (FBL), which they say will be a risky decision as its fragile financial status may fail to offer returns against investments. The government has planned to inject Tk1,100 crore into FBL through the Investment Corporation of Bangladesh (ICB) and state-owned Sonali, Janata, Agrani and Rupali banks to meet the cash shortfall. As per the plan, these institutions will buy FBL shares through private placement. Several months ago, the FBL board decided to raise a capital of Tk1,100 crore by floating shares through private placement but failed to attract investors due to its crisis. It then tried to get the fund from government organizations. As a part of its efforts, the FBL has already approached ICB to sell share of Tk355 crore, sources at the bank said. Speaking to the Dhaka Tribune, former bankers and economists termed the initiative a risky and illogical one on grounds of financial status and investment return. “The banks, which will supposedly buy share of the Farmers Bank is not in a good position in terms of their financial performance and strength. Only ICB has good financial status. Non-Performing Loans of the other banks have been piling up in recent years,” AB Mirza Azizul Islam, former advisor to caretaker government, told the Dhaka Tribune.
Also Read- ICB unwilling to invest in Farmers Bank shares
These bank need funds from the government to meet the capital requirement every year. The government has to keep a special allocation in the budget for recapitalization of state owned banks, said Islam. On the other hand, these banks are going to buy shares of a bank which is struggling to survive due to its corruption in disbursement of loan and will not be able to declare dividend in future, he added. Since the bank are not listed with the capital market, the investors will not be able to trade it while there is no chance of offering dividend by the bank due to its fragile financial situation, the economist said. “Considering these aspects, I think investment in Farmers Banks is not logical and may result in the loss of the invested money,” said Islam, a former chairman of Bangladesh Securities and Exchange Commission. In the current fiscal year, the government has allocated Tk2,000 crore for recapitalization of state-owned banks. The government injected Tk11,705 crore as recapitalization fund into the state-owned banks from FY2009-10 to 2015-16. Meanwhile, providing funds by government organizations to the ailing Farmers Bank may create a bad culture of dependency, which could encourage others in a similar situation. “The current condition of the Farmers Bank is the result of the corruption by its management. In a private bank, there is board of directors and if fund is needed, they will arrange it,” former Bangladesh Bank governor Salehuddin Ahmed told the Dhaka Tribune. The government’s duty is not to provide funds to a private bank but to ensure punishment if there is malpractice. It also will dictate how a bank will run and follow the rules and regulations, Ahmed added. “Buying shares of Farmers Bank with the state fund will not be a wise decision. It is very risky investment,” he said, questioning the move. He said if it is done, then it would set a trend and others would follow it citing the example, adding that the government should think twice before pouring public funds into the private bank. However, an economist said that helping the FBL was necessary to restore the depositors’ confidence. “Crisis in a bank affects the other banks and erodes depositors’ confidence. Considering the holistic approach of the banking sector, Farmers Banks should be helped by providing financial assistance. The present crisis of Farmers Banks is the result of the lack of confidence of depositors in the bank,” said Dr Ashikur Rahman, a senior economist at the Policy Research Institute. To attract new deposits, the bank has to restore public confidence and change the public perception by ensuring good governance, said Ashikur. “The bad situation will not last long as there is new management and the Bangladesh Bank is strongly monitoring the bank’s activities,” he added. “So, there is option for revival.” Those who will provide funds will be shareholders and may gain in long term.
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