Poor financial health: BKB mulls issuing bond, Rakub seeks govt funds 

Bangladesh Krishi Bank (BKB) mulls to issue bonds while Rajshahi Krishi Unnayan Bank (Rakub) seeks government funds as the state lenders' capital shortfalls have been on the rise.  

At the end of June this year, BKB's deficiency in minimum capital requirements stood at Tk11,844 crore, which was 40% of the capital to risk weighted assets ratio (CRAR). The figure was Tk10,318 crore as of the corresponding month last year, according to Bangladesh Bank data. 

For Rakub, the shortfall increased to Tk1,506 crore, a 17% of CRAR, from Tk1,338 crore the previous year. The capital shortfalls of the two banks have been on the rise for a long time. 

BKB Managing Director Shirin Akhter and Rakub Managing Director Md Ismail Hossain discussed the matters with the central bank at a meeting on Thursday last week, in which Bangladesh Bank Governor Fazle Kabir, deputy governor Kazi Sayedur Rahman, and Department of Off-site Supervision Executive Director Ahmed Ali, among others, were present. 

"We submitted a proposal to the finance ministry seeking an increase in our paid-up capital. Besides, we also sought low-cost funds from the government," Ismail Hossain told The Business Standard.

He hoped that the government would grant those, and they would be able to minimise their capital shortfall.

A senior BB official, seeking anonymity, said the governor asked managing directors of the banks how they would cut down their capital shortfall. 

In response, the BKB managing director said they were planning to issue bonds on the finance ministry's approval. 

Researchers and economists, however, did not appreciate the initiatives with which the two state lenders were moving. 

"Issuing bond, and seeking funds are absolutely a sign of their inefficiency," Executive Director at the Policy Research Institute (PRI) Ahsan H Mansur said.

"They are disbursing loans, then why they cannot realise those," he raised questions. 

If the government provides them with the facilities it would just minimise their capital shortfall on paper, he said, adding that they (the two banks) were not with the nature of business. 

Ahsan H Mansur said there were huge irregularities in the two banks which should be addressed first. Otherwise, the capital shortfall would widen further. 

"Many other organisations are disbursing small-scale loans and receiving payments. But the two specialised banks cannot," he wondered. 

The government earlier provided them with capital support several times, but they repeatedly lost the amount. 

The PRI executive director suggests improving systems, ensuring corporate governance, and strengthening administrative capabilities to minimise the capital shortfall.

Meanwhile, a central bank senior official said they could not hold any meeting with the two banks for a long time amid the pandemic. 

"We instructed the banks to appoint chief financial officers, and information technology specialists as early as possible," he added. 

Earlier, state-owned commercial banks appointed chief financial officers and chief information technology officers, following a BB directive in 2018. 

The employment of the chiefs resulted in better financial reporting, and digitalisation of banking services, BB officials observed. 

Non-performing loans

According to the latest Bangladesh Bank report, at the end of September this year, 9.44% loans of BKB's disbursed Tk25,000 crore were non-performing, while Rakub had 19.29% of the Tk6,200 crore total loans. Though Rakub reported no provision shortfall, BKB had Tk21 crore deficiency in provision. 

BKB could realise Tk15.27 crore against a target of Tk68 crore from its top 20 loan defaulters, while Rakub managed to collect less than one crore against Tk44 crore of target. 

Besides, the two banks could realise higher from other defaulters, but the performances in realising right-off loans were not mentionable, the BB said. 

The two state-owned banks, however, failed to submit their balance sheets within the deadline that expired on 31 October 2021. They might get a two-month extension for the submission from the central bank, in compliance with the Bank Company Act 1991.

Besides, both banks failed to achieve targets, set by the central bank, of decreasing the number of loss-incurring branches. 

As of June 2020, a total of 311 branches of BKB were in loss. Among them, it could cut the loss-incurring branches by 21 against the target of 47 until June this year. 

RAKAB's could reduce loss-making branches to 151, down from 195 of the previous year.