Basic for early bond issuance

Dhaka,  Monday,   2016-09-23
Published : 23 Sep 2016, 23:47:33
Tk 26b capital shortfall under Basel-III

Basic for early bond issuance

Syful Islam


The state-owned Basic Bank has requested the government's finance authority to expedite bond issuance to help it out through replenishing its capital shortfall of Tk 26 billion as per requirement of the Basel-III provision.

In a letter to the ministry of finance (MoF) the bank's managing director, Khondoker Md Iqbal, made the request and forwarded a sample of the proposed 'Basic Bank Recapitalisation Bond', officials said.

The problem-ridden bank was given bailout facilities earlier also. In total, it had received from the government Tk 23.90 billion to meet its capital shortage, including Tk 12 billion given to it in December last for recapitalisation.      

As per his proposal sent to the ministry recently, the government, as the owner of the bank, will issue 26 bonds valued at Tk 1.0 billion each. Against the bonds the bank will issue general shares worth Tk 26 billion.

The maturity period of the bonds will be 10 to 20 years, with their ownership being non-transferable.

In the letter, the MD of the bank said the capital shortage of the bank could be met if the government issued bond instead of doling out cash. In this case the bank will issue shares in favour of government.

According to him an increased provisioning obligation against loans has raised the capital requirement of the bank. The requirement of provisioning will be reduced if loans can be recovered and rescheduled.

He said the provisioning requirement as of December 2014 was Tk 42.97 billion, which came down to Tk 38.58 billion in December 2015. He was hopeful about nearly halving the figure to Tk 21 billion over next five years.

Under the Bank Company Act 1991, each of the scheduled banks are to meet the capital requirement set by the central bank, he wrote.

Contacted over telephone, Mr Iqbal preferred not to comment on this matter.

However, a senior official of the bank told the FE that the bank has enough liquidity but that cannot be used for meeting capital shortfall set by the central bank.  

 "A handsome amount of liquid money remains idle as we can't provide loan because of loan-deposit ratio set by the central bank.

In the past, a big amount of loan was sanctioned much beyond the set ratio," he said.

When contacted over the capital-shortage conundrum facing the bank, chairman of Policy Research Institute of Bangladesh (PRI) Dr Zaidi Sattar earlier told the FE it seems that the public money is being put in 'black hole' in the name of recapitalisation of banks repeatedly.

"In the recent years we saw the public money finally channelled into the wrong hands through corruption. It's not justified at all," he said.

Terming it misallocation of resources Mr Sattar said the funds could have been invested in other development sectors if repeated recapitalisation of banks were not needed.

 syful-islam@outlook.com
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