The interim government of Bangladesh has approved a significant capital boost for the struggling Bangladesh Krishi Bank (BKB), raising its authorised capital from Tk 1,500 crore to Tk 5,000 crore.
This surge adds Tk 3,500 crore to the state-owned bank’s capital, marking a substantial increase aimed at addressing the bank’s prolonged financial challenges, which have persisted for over 30 years. According to sources in the Ministry of Finance’s Financial Institutions Division, the government has issued a notification regarding this.
The Business Post has obtained a copy of the notification. Experts indicate that an increase in authorised capital allows an institution to enhance its financial base either through internal mechanisms or by securing additional funding from the government.
Furthermore, capital could be bolstered through increased deposits. Given that the BKB has traditionally relied on state support to sustain operations, the government’s backing has likely enabled this capital augmentation.
They further attribute the BKB’s sustained losses over the past 30 years to structural imbalances in its lending model. The state-owned bank is mandated to offer loans at low interest rates while the interest rate on deposits remains high, creating a persistent financial strain. Exacerbating the issue is a high level of defaulted loans, along with periodic waivers on interest during natural disasters, making profitability an elusive goal for the institution.
Decades of mounting losses
In the past year alone, losses for the specialised bank have deepened by an additional Tk 188 crore, bringing the total deficit to approximately Tk 750 crore by the end of 2023. This alarming figure was revealed in the bank’s 2023 financial report, underscoring the severe financial challenges it continues to face.
The Bangladesh Krishi Bank entered 2023 with losses totalling Tk 561 crore. By June, these losses had more than doubled, surging to Tk 1,746.16 crore.
However, income from loans and improved recovery of outstanding debts allowed the bank to reduce its losses to Tk 749.59 crore by year-end. This brings the bank’s net annual loss to Tk 187.95 crore — a 33.46 per cent increase compared to the previous year’s deficit of Tk 561.64 crore.
Officials from the BKB told The Business Post that the institution has recorded losses nearly every year since its inception. Established in 1973 under a presidential order, the bank was created to support the war-torn nation’s agriculture sector, but persistent challenges have kept it in the red.
According to BKB’s financial records, the bank reported losses of Tk 165 crore in the fiscal year 1994-95 and has continued to post losses every year since, except 2000-01, when it recorded a modest profit of Tk 2.91 crore.
Structural imbalances persist Md Ali Hossain Pradhania, a former managing director of the bank, explained that the persistent losses stem primarily from the disparity between the interest paid on deposits and the lower rates at which the bank lends.
“The Krishi Bank predominantly offers loans to the agriculture sector at government-mandated interest rates, typically three to four percentage points lower than commercial loan rates, while deposit interest remains comparable with that of commercial banks,” he said. Without structural reform, Pradhania noted, it will be challenging for the bank to achieve commercial sustainability.
In the mid-1980s, the Bangladesh Krishi Bank was directed by the government to waive a significant volume of agricultural loans, but it never received subsidies to offset this financial loss, which further deepened its deficit. Ali Hossain Pradhania added that the bank also provides certain government services at no charge.
“With 3.5 million borrowers, the operational and monitoring costs for such an extensive customer base are substantial,” he said. Rising debts and trade gains According to central bank data, the Krishi Bank’s non-performing loans reached Tk 3,188 crore at the close of the fiscal year 2022-23, representing 10.55 per cent of its total loan portfolio.
The bank’s involvement in foreign trade has steadily expanded. In 2023, its import transactions doubled to Tk 4,298 crore from Tk 2,055 crore in the previous year, while exports rose from Tk 489.98 crore to Tk 530.50 crore.
Remittance inflows, another key source of foreign income, also surged, with Tk 3,695.47 crore received in 2023 compared to Tk 1,857 crore in 2022 — a growth of 99 per cent.
