Credit rating with govt support in view hides Rupali Bank's failings
Despite capital and provision shortfalls, state-owned Rupali Bank's credit rating with the government's backing into consideration paints a rosy picture.
Emerging Credit Rating Limited gave the lender the highest "AAA" rating, keeping in view the government's support, according to a filing on the Dhaka Stock Exchange (DSE) on Sunday.
In the same report, the bank was ranked "A-" in the long term based on the financial reports for the 18 months through June 2022, without taking the government's backing into consideration.
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A credit rating is an assessment of a prospective debtor's credit risk, predicting their ability to repay the debt and providing an implicit forecast of the debtor's likelihood of default.
A high credit rating indicates that a borrower is likely to repay the loan in its entirety without any issues, while a poor credit rating suggests that the borrower might struggle to make their payments.
Emerging Credit Rating's Managing Director NKA Mobin told The Business Standard, "Two ratings of government-owned institutions are published in developing and third world countries. But developed countries do not have this practice. There should be just one rating."
"State-owned banks have sovereign guarantee. Therefore, the government is responsible for refunding the clients' money," he added.
He said many investors take the government's support into account and decide by looking at the rating, while others invest by seeking the rating of individual banks.
According to central bank sources, as of September 30 September 2022, Rupali Bank's provision shortfall against defaulted loans is Tk3,000 crore. And as of March, the bank has a capital shortfall of around Tk2,000 crore.
The government had earlier injected Tk679.99 crore as a share money deposit for meeting the capital shortfall of the financial institution. The bank now wants to convert the amount into shares in favour of the government, subject to the stock market regulator's approval.
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 incurred losses in the July-September quarter of 2022. During the quarter, its consolidated earnings per share were Tk0.09 negative.
