State-owned Rupali Bank Limited wants to increase its paid-up capital by issuing shares in favour of the government against its share money deposit – the money paid in exchange for shares.
The government had earlier injected Tk679.99 crore as a share money deposit for meeting the capital shortfall of the financial institution. The bank will now convert the amount into shares subject to the stock market regulator's approval.
The decision has come from a Thursday evening meeting in which the bank also approved its half-yearly financial statement for this year.
But the lender has not disclosed at what price it will issue the shares to the government.
The Business Standard called the bank's Managing Director Obayed Ullah Al Masud on his mobile phone for his comments on the issue but he did not answer.
And the company secretary of the financial institution declined to speak on this.
Earlier, in February 2020, the Financial Reporting Council issued a directive saying that share money deposits must be converted into the company's capital to prevent misuse of the money.
It is against the corporate governance and international financial reporting practices to show share money deposit as share capital or liability in the financial statement, it said.
In June this year, the Bangladesh Securities and Exchange Commission (BSEC) asked Rupali Bank to explain its failure to pay cash dividends to its shareholders and maintain provisions against default loans.
The regulator in the letter stated that the bank paid a 2% stock dividend to its shareholders for 2021, and added that it has been paying only stock dividends for more than a decade.
And through the stock dividends, the paid-up capital of the state-run bank has increased by 140%. But according to laws, if the cash dividend is not paid for two consecutive years, the company is sent to the "Z" category in the stock market. The bank's shares are currently trading in the "A" category, but will now go to the "Z", added the letter.
Meanwhile, as per the guidelines of the Bangladesh Bank, the bank's required provision against its classified loans is Tk5,135 crore but it has a provision of only Tk2,064 crore. In other words, the provision deficit stands at Tk3,078 crore.
Due to this deficit, the bank's net asset value and earnings per share have increased in 2021 which is a concern for investors, says BSEC.
At the end of 2021, its total defaulted loans stood at Tk6,666 crore, which is 18.84% of the total loans disbursed. In 2021, its defaulted loans increased by 68% compared to the previous year, according to its audited financial statement.
Furthermore, the lender earned a net profit of Tk13 crore in the first half of this year, which was 28% lower than the previous year at the same time.
Its consolidated earnings per share stood at Tk0.29, which was Tk0.39 a year ago.
Rupali Bank's core business has not been going well for the past few years. Its net interest income has become negative as it operates loan activities with high-interest deposits.
Even then, the bank is showing regular profits. And this has been possible because of large investments in government securities and the stock market. Besides, low provisioning has also helped it to show a profit.
Rupali Bank was listed on the capital market in 1986 by issuing 9.81% shares.
The closing price of the stock on the Dhaka Stock Exchange (DSE) on Sunday was Tk25.80. The highest share price of the bank in the last two years was Tk41.70.