State-owned banks will no longer get capital support from the state coffers.
The four state-run banks – Sonali, Janata, Agrani and Rupali – would have to cut down their losses gradually and make profit at a rate of at least 15 percent, said Finance Minister AHM Mustafa Kamal after a meeting with the chairmen and managing directors of the banks.
He asked the banks to prepare action plans in this regard. A meeting will be held in the first week of the next month over the action plans, informed the minister.
Of the four banks, Janata and Rupali were facing a combined capital shortfall of Tk3,358 crore as of March, according to Bangladesh Bank data.
The cumulated capital shortfall of six state-owned banks stood at Tk16,000 crore in March.
From 2008-09 to 2017-18, the government spent around Tk18,000 crore for recapitalization to the state owned banks.
In the 2018-19 fiscal year, Tk1,500 crore was allocated for the recapitalization purpose, however only Tk151 crore of the money could be used.
No allocation was kept for recapitalization in the budget for the current fiscal year (FY20).
A proper road map is needed before stopping recapitalization to the state banks, said Ahsan H Mansur, executive director of Policy Research Institute (PRI).
He said the state-owned banks can run without taking capital support only if corruption can be prevented. Otherwise, stopping recapitalization will put the banks in deep trouble, he added.
He, however, expressed his doubt over the implementation of the decision of stopping recapitulation to state-run banks. “I do not believe it will happen which did not happen in last five decades,” he said.
Meantime, the finance minister acknowledged that there has been an increase in the amount of non-performing loans (NPLs) despite his vow to stop their further growth.
“Though, I announced that NPLs will not increase further, it could not happen because the exit plan has not been executed yet,” said the minister.
However, in response to a question asked with reference to Bangladesh Bank data and reports published in the media, he claimed, “NPLs did not increase till June.”
“Until the exit plan on NPLs is executed, it cannot be evaluated whether the amount of NPLs has increased,” he said. NPLs will significantly go down if the policy is executed, he added.
The exit policy now awaits court’s decision.
Earlier on May 16, the Bangladesh Bank issued a circular on special loan rescheduling policy allowing the defaulters to regularize their loans for 10 years paying 2 percent down payment instead of existing 10 to 15 percent down payment.
Defaulters were asked to apply under the policy within 90 days from issuing date of the circular.
However, on May 21, the High Court (HC), following a writ petition filed by Human Rights and Peace for Bangladesh (HRPB), issued a status quo on the central bank’s May 16 circular till June 24.
On July 3, the chamber judge of the Appellate Division of the Supreme Court (SC) stayed the HC order till July 8 and sent it to the SC full bench.
On July 8, the Supreme Court (SC) extended its stay on a HC order that halted the BB circular for two months.
The apex court however issued a condition saying that the loan defaulters would not be allowed to get further loans by depositing two per cent down payment of the total loan amount.
Earlier on 10 January, AHM Mustafa Kamal, soon after taking office as new finance minister, announced that NPLs will not increase further as, according to him, the Bangladesh Association of Banks (BAB) was going to take necessary measures to check the bad loans.
His announcement did not come true because NPLs increased by Tk17,000 crore in March from December last year.
In the next move, instructed by the finance ministry, the central bank issued a relaxed loan rescheduling package allowing defaulters to regularize loan for 10 years at 2 percent down payment with a view to bringing down NPLs.
The facilities did not help banks reduce NPLs. According to official data, the amount of NPLs increased by more than Tk1,000 crore in June.
The total NPLs stood at Tk1,12,425 crore in June which was Tk 1,10,873 crore in March, the latest central bank data showed.
However, the rate of NPLs declined slightly to 11.69 percent in June from 11.87 percent in March. This is because there has been an increase in new loans.
The finance minister on Sunday also touched upon the single-digit interest rate issue saying that the central bank would issue a circular in this regard.
The Bangladesh Bank has been instructed to issue the circular and the government will provide all kind of support to this end, he said.
Explaining as to how the government can support the banks in this regard, the minister said that corporate tax can be reduced.
If corporate tax is reduced, banks will make huge benefits, he noted.
Earlier on 4 August, the finance minister announced that single-digit interest rate would be implemented through issuing circular by the Bangladesh Bank soon. Bangladesh Bank Governor Fazle Kabir was present at the time of announcement.
However, in a latest development, the central bank, instead of issuing circular, has recently sent letters to all banks advising them to bring down the lending rate to single digits in line with their commitment they had made to the government earlier.
The finance minister sat with the four banks after renewal of appointments of the managing directors of three state-owned banks -- Sonali, Rupali and Agrani.