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Troubled FBL: Puzzling rescue operation

September 13, 2018 00:00:00

Four state-owned banks, one investment institution and a fourth-generation private commercial bank are now engaged in a puzzling exercise, courtesy of the government. What the public sector entities have been doing in the name of saving the troubled private sector bank, namely, the Farmers Bank Limited (FBL), has given rise to a few questions. As the owner of the relevant state-owned banks and the investment institution, the government owes it to itself to offer answers. Instead of doing this, the government is now apparently busy to save the FBL from going bust.

The state-owned banks themselves are capital-deficient and yet they are out to saving the FBL that until recently could not pay their depositors for shortage of funds. The public sector banks and the Investment Corporation of Bangladesh (ICB) have jointly purchased 60 per cent shares of the FBL at Tk.7.15 billion. But irony is that these banks which have infused capital into the FBL have themselves been pleading to the government for their own capital replenishment. The largest of these banks, the Sonali Bank, has recently sought a government guarantee worth Tk.60 billion to help overcome its capital shortage problem. Another partly-divested bank, involved in the FBL rescue bid, is on the way of floating bond to replenish its own capital.

Only a few weeks after buying of stakes of the FBL, the banks and the ICB are reportedly mulling buying subordinated bonds worth Tk 10 billion, to be issued by the FBL. The move is aimed at injecting more funds into the private bank. Investment by banks and financial institutions with an objective of earning profit is a routine affair. But what is happening in the name of saving the FBL is bound to evoke surprise. It is not that difficult to understand that the public sector banks and the ICB did not volunteer to inject funds into the FBL. They have been made to do that. Only time would say whether the move on the part of the government was a prudent one or not.

Besides, issues concerning poor management and non-performing loans of the public sector banks do need to be considered in the context of all investments being made by these banks and ICB in the FBL. Poor management and imprudent loan decisions at the state-owned commercial banks are very much real and these lapses are largely responsible for putting these banks in deep financial trouble. A huge volume of toxic loans has been hurting these banks for long and their problems are becoming increasingly complicated day by day.

There is no clear sign that the government is serious about pulling these institutions out of ongoing difficult situation. Given their past track record, one can hardly expect any better performance on the part of these financial institutions as owners of the majority stake in the FBL. True, the government cannot shy away from the task of saving sensitive financial institutions from liquidation. Yet, by any count, the use depositors' money belonging to a number of capital-deficient public sector financial institutions for rescuing a troubled private bank may not be an appropriate move.

It is understood that the government might have pulled the string from behind in the entire rescue-bid. Under the circumstances, one can only hope against hope that the FBL under the changed ownership and management would perform better and ensure handsome return on the investments being made by the four state banks and the ICB.

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