Except for six banks and one financial institution, all banks have received special treasury bonds issued by the Bangladesh government to banks facing the risk of not recovering loans given to the power and fertiliser sectors.
The total value of these bonds issued by the government is Tk 20,348 crore, with an allocation of Tk 10,594 crore for the power sector and Tk 9,754 crore for the fertiliser sector, according to a source from the finance ministry.
According to sources, the finance ministry's target is to issue bonds worth Tk 22,857 crore, with Tk 12,857 crore allocated for the power sector and Tk 10,000 crore for the fertiliser sector.
The government started issuing special bonds to settle dues accumulated in banks from independent power producers (IPPs) and fertiliser importers.
Banks that did not apply for bonds
It has been reported that the Commercial Bank of Ceylon (CBC), Citibank NA, Hongkong and Shanghai Banking Corporation Limited (HSBC), Standard Chartered Bank, and Agrani Bank PLC have not applied for bonds despite having loans in the power sector. Among them, Agrani Bank has the least amount owed.
If these banks apply for the bonds, the government will need to issue an additional Tk 1,200 crore worth of bonds. Additionally, the government will not issue bonds to the non-bank financial institution Infrastructure Development Company Limited (IDCOL).
On the other hand, except for Bank Asia PLC, all the banks that provided loans for the fertiliser sector received bonds.
A senior official from the Finance Division, speaking on condition of anonymity, told The Business Post that banks which have not yet applied for bonds can still do so, and the government will issue bonds if they apply.
However, even if IDCOL applies, it will not receive bonds because the government will not issue bonds to non-bank institutions, he said.
Ensuring accurate bond accounting crucial
Relevant sources have also said that it is now crucial to ensure proper accounting for these bonds. Additionally, the Bangladesh Power Development Board (BPDB) has been instructed to record everything transparently, as these accounts will be processed through them.
If they do not coordinate with the banks and relevant institutions, there could be discrepancies in the accounts.
Interest and tenure details
Power Division officials say that the banks will get an interest against these bonds, and maintain their cash reserve ratio (CRR) and statutory liquidity ratio (SLR) with the Bangladesh Bank through these bonds.
At the end of the tenure, the government will take back these bonds after paying the principal with interest. The government usually issues 20-year tenure bonds, but the tenure of these special bonds will be different for each bank. This tenure can range from 8 years to 10 years, insiders say.
Since June 2023, the Ministry of Finance has issued bonds in phases to 40 banks to pay off total liabilities of Tk 25,500 crore. Ministry officials say the interest rate of these bonds has been set at 7.7 per cent, which is almost equal to the repo rate set by the Bangladesh Bank.
Subsidy details
In FY23, the total subsidy in the power sector stood at Tk 42,893 crore. After increasing the price of electricity several times in 2023, the amount of subsidy has decreased. In 2022, the power sector needed more than Tk 4,000 crore per month as subsidy, now it has come down to around Tk 3,000 crore.
Finance Division officials said the government has paid the electricity subsidy dues till October 2023.
The Bangladesh Independent Power Producers' Association (BIPPA), an organisation of private power plant owners, has informed that private companies are receiving 25 per cent – 30 per cent of the monthly bill from the BPDB.
Until June 2023, the amount of outstanding subsidy in the fertiliser and power sector was around Tk 42,000 crore. Out of this, Tk 15,000 crore was in dues for power companies, and Tk 10,500 crore was for fertiliser importers in 40 banks.
