Capital problem of state-owned banks

The government had injected around Tk18,000 crore – enough to fund some mega projects like the Dhaka-Ashulia Elevated Expressway or the Karnaphuli tunnel – with the taxpayers' money into them in the last one decade till FY18, but the four state-owned commercial banks have failed to improve their capital base.

Every time their vaults were refilled with fresh money, they were eventually drained dry to feed a few big defaulters who have lavishly used the banks as a conduit to becoming rich without accountability.

These banks today represent a pattern of how public money can be freely used by the rich and powerful.

Eventually, capital shortfalls in these four banks have increased fourfold since the government stopped providing them support from the state coffers in 2019.

The cumulated capital deficit in these banks – Sonali, Janata, Agrani and Rupali – stood at Tk12,195 crore at the end of December 2020, up from Tk3,358 crore in March 2019 when Finance Minister AHM Mustafa Kamal announced that state banks would no longer be recapitalised by the government.

This has made the Bangladesh Bank concerned, prompting it to form a committee in March this year to find ways to meet the capital shortfall.

In the committee formation meeting attended by top executives of the four banks, Bangladesh Bank Governor Fazle Kabir expressed serious concerns over the acute capital shortfalls in the banks and asked the committee to find a way to improve their capital base, according to meeting minutes.

The finance minister asked the banks to cut losses gradually and make profit at a rate of at least 15%.

He also took action plans from the four banks on improving their financial health.

However, the financial health of these banks did not improve according to the finance minister's instructions. Instead it has deteriorated gradually.

Janata has the largest shortfall

The scam-hit Janata bank has the biggest capital shortfall among the state-owned banks. The bank has also sunk in huge losses due to high default loans caused by loan scams.

Janata's capital shortfall stood at Tk5,475 crore at the end of December last year and it incurred a net loss of Tk5,054 crore in 2020, according to Bangladesh Bank data.

In the meeting with the governor, Md Abdus Salam Azad, managing director of Janata Bank, blamed two big defaulters – Crescent and AnonTex – for the bank's huge loss.

Referring to his comment, the meeting minutes said the Bangladesh Bank cancelled loan rescheduling of those two defaulters upon which the loans of Tk10,000 crore became defaulted.

he bank sought provision forbearance from the central bank to show profit.

In 2019, Janata Bank made a loss of Tk12,000 crore. But, it showed a profit of Tk24.64 crore in the final balance sheet by taking a provision deferral of Tk10,963 crore from the central bank that year.

Even though financial indicators show a deteriorating trend, Ajit Kumar Paul, additional secretary and director of Janata Bank, claimed that the health of the bank has been improving.

He argued that capital shortfall is the consequence of previous shortfalls.

When asked in what aspect the bank is improving, he could not mention any specific indicator. He, however, claimed that the bank's performance was well enough considering the pandemic situation.

Gov spent Tk18,000 crore to recapitalise banks

Among the other three state-owned commercial banks, Sonali faced a capital shortfall of Tk3,063 crore, Agrani's shortfall was Tk3,000 crore and for Rupali, it was Tk671 crore at the end of December last year, according to Bangladesh Bank data.

Of them, only Sonali Bank made a net profit of Tk338 crore last year. The other two banks showed profits, keeping provision shortfall.

Between 2008-09 and 2017-18, the government spent around Tk18,000 crore for the recapitalisation of state-owned banks.

In the 2018-19 fiscal year, Tk1,500 crore was allocated for recapitalisation. However, only Tk151 crore of the money could be used.

No allocation was kept for recapitalisation in the budget for FY20.

It is not justified to stop providing capital support to state banks as they give many free services to the government, said Mohammad Shams-Ul Islam, managing director of Agrani Bank.

He said the government should compensate state-owned commercial banks for their free services.

"We proposed to the governor to allow sovereign guarantee as an alternate capital support for state banks," he said.

The committee is working on the issue on how we can take sovereign guarantee and monetise it into capital, he said.

He further added that huge capital erosion will put state banks in trouble because they will not be accepted for LC (Letter of Credit) to the foreign banks.