Capital shortfall of three state-run banks

It is a matter of grave concern that the capital shortfall of the three state-run banks – Sonali, Janata and Agrani – has continued to spike at a time when surging inflation is crippling our economy. According to a report published by this newspaper yesterday, those three banks had failed to replenish their capital shortfall till December 2022. Inefficiency and lack of professional management in the banking sector must take the major share of the blame.

Of the four state-run banks only Rupali Bank could replenish its capital shortfall. It is the bad loan for which the banks have experienced the capital shortfall. It all started as the central bank relaxed its classification rule in the wake of the Covid-19 pandemic outbreak.

Less than two weeks after the coronavirus has struck the country the Bangladesh Bank asked the banks not to consider businesspeople defaulters even if they failed to repay their installments until June 30, 2020.

The decision was rightly taken during the corona pandemic. However, this provision has been extended several times. The provision was also in place in 2022. We don’t know under what circumstances the provision has had to be extended. The decision to extend the provision put in place during the corona pandemic has raised some eyebrows.

The World Bank last month also said the relaxed loan classification and the repayment period for defaulted loans were increased to eight years from two years. The down payment requirement for rescheduling was lowered to as little as 2.5 per cent. Non-performing loans can be rescheduled up to four times. All this has put those banks in deep crisis.

As a result, the bad loans have continued to swell affecting the capital shortfall severely. The bad loans at the four banks reportedly rose to Tk42, 161 crore last year from that of Tk32, 618 crore a year ago. Sonali Bank after last year’s meeting with the central bank set its capital to risk weighted asset ratio (CRAR) at 10.31 percent, but its actual CRAR stood at 7.33 percent at the end of 2022.

Similarly, Janata Bank’s CRAR target was 10.07 percent, but its actual CRAR stood at 8.14 percent while Agrani Bank’s CRAR target was 7.17 percent while its actual CRAR stood at 5.2 percent at the end of 2022. The question that remains unresolved is if Rupali Bank could achieve beyond its target why have the other three banks failed to replenish their capital shortfall? Rupali Bank’s achievement has showed that it was not impossible for others to meet the target set by the central bank.

Borrowers also enjoyed moratorium on their loan at the Rupali Bank. This bank has also had sub-standard loan and this bank has also had to suffer due to the Covid-19 pandemic. But it could overcome all those hurdles while the other three couldn’t. Of course, there have been some wrong decisions, nepotism and weak professionalism for which they are ultimately suffering while public money is getting into the pocket of some unscrupulous traders.

The government must put serious attention to reducing the bad loans in the state-run banks, it has to curb political influence in getting loans and it has to make sure there is no more moratorium on bad loans as the Covid-19 period is over. The World Bank too expressed its concern saying that the extent of troubled assets is obscured by lax regulatory definitions and reporting standards, extended forbearance, as well as weak supervisory enforcement.