The state-owned BASIC Bank is suffering from severe shortfall of capital as a result of sanctioning loans aggressively without keeping necessary provisions as required by the rules.
The bank had fallen into a provision deficit of Tk2.1bn as on December 31 last year, to adjust which its capital shortage would stand at around Tk1.39bn, said a Bangladesh Bank source.
According to banking rules, the shortage could now be adjusted first from the bank’s income, and then – if the income amount is exhausted – from its capital.
The BASIC Bank made a net profit of Tk740m last year, which, however, means it cannot adjust the deficit of provision – a reserve amount kept against a loan – with the profit.
The bank has a capital of Tk7.69bn. If the provision deficit is adjusted from this amount, the bank will face a capital deficit of Tk1.38bn because the Bangladesh Bank ascertained its mandatory capital at Tk6.98bn.
An inspection of the Bangladesh Bank ordered by Governor Atiur Rahman found that the BASIC Bank’s provision as on December 31 last year should have been Tk4.42bn against loans and advances of Tk85.95bn. However, the bank kept only Tk2.32bn as provision.
The central bank governor in a letter dated April 30 instructed the BASIC Bank to adjust the shortage.
In reply on May 6, the bank’s Managing Director Kazi Faqurul Islam said: “The bank is not capable right now to adjust a provision shortage of Tk2.1bn.” He wrote the bank management was optimistic that it would be able to adjust the deficit gradually within December 31, 2014.
According to the Bangladesh Bank findings, the BASIC Bank’s profit figures during 2009-2012 were Tk648m, Tk660m, Tk976m and Tk740m. During this period the bank disbursed loans of Tk29.36bn, Tk63.41bn, Tk56.88bn and Tk85.95bn.
However, the bank’s profit did not increase with the loan disbursement rate; it rather declined in 2012 by Tk235m or 24.15% compared to the previous year.
Activities of desperate loan disbursement at several branches of the bank, which constituted the majority debt, and weak management were mainly responsible for the current ailing situation of the BASIC Bank, the Bangladesh Bank report said.
The central bank is now worried that the large amount of capital shortage could have negative impact on the BASIC Bank.
