More than 52% of non-performing loans are at eight state-owned banks
The government will inject another Tk1,500 crore in FY 2019-20 into state-run banks to meet their capital shortfall, despite their persistent financial irregularities and irresponsible lending practices.
More than 52% of the loan defaults were at eight state-owned banks.
As of this March, the eight banks had Tk58,667crore in non-performing loans, according to the latest central bank data.
In the last 10 years, the government has supplied a total of Tk17,521 crore in capitalization to ailing state banks with budgetary allocation since fiscal year 2009-10.
Economists have raised concerns about the practice of recapitalizing state-owned banks with budgetary allocations, saying that the trend won’t help improve these banks’ health. Rather, it will encourage loan defaults.
AB Mirza Azizul Islam, former finance adviser to the caretaker government, said: “There is a huge lack of good governance at state owned banks. The banks are gradually weakening due to the high amount of loan defaults and not being able to recover these bad loans.
“So recapitalizing them should be stopped and the government will have to find alternative ways to save these banks,” he said.
Bailout budget allocations reached a peak at Tk4,477 crore in fiscal year 2013-14 and were at their lowest, Tk1650 crore, in fiscal year 2012-13.
In the current 2018-19 fiscal year, the allocation was Tk1,500 crore.
When recapitalizing state-run banks started in fiscal year 2009-10, the budgetary allocation was Tk1,000 crore, which rose to Tk1,050 crore the following year, but fell to Tk343 crore in FY 2011-12.
Tk2,617 crore was allocated in fiscal year 2014-15, while Tk1,799 crore was set aside in FY2015-16, and Tk3,085 crore in the following two fiscals.
Talking to the Dhaka Tribune, Agrani Bank Chairman Dr Zaid Bakht said: “State-owned commercial banks meet their capital shortfall from money people pay as taxes. But this should not happen.”
“In most cases, government organizations become defaulters of state-owned banks. If we can recover the nonperforming loans made to government organizations, budget allocations will not be required to meet our capital shortfall,” he said.
The government can also allocate funds to government institutions directly in the national budget which would help reduce loan defaults, Bakht added.
By the end of December, 2018, six state-owned banks had a combined capital shortfall of Tk24,611crore, following their failure to meet minimum capital regulatory requirements.
According to Bangladesh Bank data, by the end of December, 2018, Bangladesh Krishi Bank had the highest capital shortfall which stood at Tk8,447crore, followed by Janata Bank at Tk5,855 crore, Sonali Bank at Tk5,320 crore, Basic Bank at Tk3394 crore, Agrani Bank at TK883 crore, and Rajshahi Krishi Unnayan Bank at Tk712 crore.
Read the full budget speech for FY20 here.