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Govt cautious in funding stock market, banks

  • Published at 02:40 am June 11th, 2013
Govt cautious in funding stock market, banks

The government has chosen to be cautious in utilising the budgetary allocation of Tk123.34bn, set aside for reviving the stock market and state-owned banks.

A senior official of the finance division, involved with the preparation of the budget, said the extra caution was a result of the uncertainties regarding the ongoing political transition.

“We do not know what the future holds for us – what kind of government will be in power before and after the election; or what the fate of the capital market and the state-owned banks will be,” he told the Dhaka Tribune.

“The banking sector was hit hard by the Hall-Mark and Bismillah Group scams. That is why the government has decided to allocate huge funds for this purpose,” he said.

The budget for the 2013-14 fiscal, allocated Tk73.34bn for investment in “share capital” and Tk50bn for “investment in recapitalisation.”

The finance division official said certain conditions have to be met before these funds, allocated for the development of the share market and the banking sector, could be released. The official said banks must show satisfactory performance in recovering default loans; authorities concerned must ensure maximum punishment for those involved with large scams; and the government exchequer must earn satisfactory revenue.

“We will do whatever it takes to prevent the misuse of people’s money,” he said.

Sources in the finance division of the finance ministry said that it had not yet been finalised how much would be received by the stock market and how much by state-owned banks.

They said negotiations were going on between the banking division of the finance ministry and the stock market regulator, the Securities and Exchange Commission.

Last month, the banking division forwarded a Tk170bn bailout proposal to the finance division, in the wake of the capital shortfall that the state-owned banks were facing, due to the major financial scams.

Three months ago, Bangladesh Bank and the global lender, the International Monetary Fund, advised the government to inject more money into state-owned banks for recapitalisation, other finance division sources said.

Of the Tk73.34bn budgetary allocation for share capital, Tk9bn is to be disbursed for the stock market through the central bank’s refinancing scheme.

The remaining amount will be invested through the Investment Corporation of Bangladesh by buying shares from the two stock markets and expanding Grameen Bank’s capital base, sources said.

The Tk30bn allocation for “equity investment” is to be spent through the Public-Private Ownership initiative during the upcoming fiscal.

The Tk50bn budgetary allocation for “investment for recapitalisation” will be spent on state-owned banks including Sonali Bank, Janata Bank and Agrani Bank, sources said.

State-owned Sonali Bank, the biggest commercial bank in the country, sought fresh funds after Hall-Mark Group embezzled around Tk36bn from it.

A total of 35 banks, including both state-owned and private, also fell into trouble due to the forgeries in inland bill purchase by the same group.

According to Bangladesh Bank estimates, the cash shortfall of the six state-owned banks stood at around Tk105bn, mostly owing to alleged corruption in fund release and account transactions.

In most of these cases, bank officials were blamed for the scams.

The capital shortfall of Karmasangstan Bank stood at Tk500m, Rajshahi Krishi Unnayan Bank at Tk5.22bn, Janata Bank at Tk10.99bn, Agrani Bank at Tk37.14bn, Sonali Bank at Tk36.04bn and Bangladesh House Building Finance Corporation at Tk5bn.

Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), told the Dhaka Tribune that injecting money into state-owned banks was a good decision, because the country’s economy could not grow without a stable banking sector.

However, he said too much funding in the capital market in the election year might turn out to be dangerous for the economy and the government.

The government’s decision to inject more funds into the stock market was a political one and only moneyed investors would be benefitted, Zaid pointed out.

However, former advisor to the caretaker government, Dr Mirza Azizul Islam, told the Dhaka Tribune that the stock market would not be revived unless the government allocated more funds in a transparent fashion.

He also said share prices were going down because the government had not cleared the specifications of the allocation kept in the budget for the stock market.

An almost inevitable crash in the country’s banking sector could be stopped if the government allocated funds for the state-owned banks, Mirza Aziz said.

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