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Banking sector capital shortfall soars to Tk25,143 crore

  • Published at 11:50 pm December 6th, 2018
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File photo of people entering in Bangladesh Bank, situated in the Capital Mahmud Hossain Opu/Dhaka Tribune

Seven public sector banks, three private banks in red zone

More than 10 of the country’s prominent banks are suffering from a deficit of capital. The situation is worsening as these banks have now started dipping into their core capital. 

Most of them are operating on taxpayers’ money. 

According to Bangladesh Bank, until now, these banks have had a large cash reserve from which they have provided loans to the market—even after spending a portion of it on day-to-day operational costs. 

However, now, they have started dipping into their core capital, resulting in a situation where the only solution is to stop these banks from operating.

The matter recently came up in a letter from the CEO and Managing Director of the state-owned Janata Bank, Abdus Salam Azad—sent to the secretary of the Financial Institution Division.

The letter says: “To keep up with the fixed interest rates, Tk2,612 crore was decremented from Janata Bank’s deposit. 

“The bank has to reserve the necessary CRR by taking call loans from the money market and assured liquidity support (ALS) from Bangladesh Bank,” the letter mentioned. “And this dire situation prevails in all state-owned banks.”

Meanwhile, the central bank’s June 2018 report states that 10 government and private commercial banks have already used their core capital due to non-payment of loans.

Seven of the banks are government-owned and the other three are private.

Until June this year, the deficit has reached Tk25,143 crore.

 Financial sector experts and economists say the government is undertaking the burden of not only the government banks, but also the irregularities carried out by private banks. 

State-owned banks such as Sonali Bank and Janata Bank were forced to buy shares of Farmers Bank when they were themselves suffering from a deficit of capital.

According to the central bank, the total capital deficit of the seven state-owned banks is Tk23,270 crore.

Assessing the current situation, former Bangladesh Bank Governor Saleh Uddin Ahmed said: “Ever year, the government has been providing capital to these banks from the national budget. 

“Providing capital to these corrupt institutions every year from the taxpayers’ money is not acceptable,” he said. 

Every time the government takes such initiatives, the organizations are encouraged to be more corrupt and incompetent, Saleh said. Analysis by the Ministry of Finance has found that, since 2009, the government has regularly provided capital to the banking sector.

In the span of eight years, in the 2009-10 to 2016-17 session, a total of Tk14,505 crore has been given to the banks as capital support. 

During the 2017-18 financial year, government banks have been given Tk1,850 crore as capital support.

A study of the Center for Policy Dialogue (CPD), a private research organization, found that during the fiscal years of 2009-10 to 2016-17, a total of Tk11,705 crore was given to banks as an initiative for re-capitalization.

This amount is equivalent to 10.8% of the government’s total revenue earnings.

CPD Fellow Mostafizur Rahman said: “Instead of spending such huge sums of money on these corrupt banks, the government should have financed more in the country’s education, health, and social sectors. This would have benefited the country a lot.”

However, Bangladesh Development Research Institute Researcher and Chairman of Agrani Bank Dr Zayed Bakht said: “I believe if the state-owned banks start charging for their services, then this situation will not recur.”

He added: “Government banks are doing a lot better than before. Maybe in the near future these banks will not need any capital support from the government.”

According to sources, from 2010-2014, the Hallmark scandal resulted in the embezzlement of Tk2,600 crore from Sonali Bank. Later, Tk4,500 crore was embezzled from Basic Bank during the Bismillah Group Scandal. 

Adding to the crisis, Janata Bank has lost Tk1,200 crore to loan scams by Crescent Group and Anon Tex Group. 

As a result, Bangladesh Bank canceled the foreign trade licenses (AD licenses) of the Imamganj and Mohammadpur branches of the banks. Now the bank has to borrow money and use their core capital to run its daily activities.

According to the information provided by the central bank, till June 2018, the total sum of loan defaults in the country’s banking sector is Tk89,340 crore. 

If the waived loans are added, total loan defaults amount to Tk138,000 crore.