Govt to offer bonds against Rupali's 'unsecured' loans

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A Z M Anas
The government will offer bonds against Rupali Bank's "unsecured" loans for state-owned firms to help the troubled lender clean up the balance sheet while shoring up its capital base, finance officials said Thursday.
They said that the finance ministry has agreed to issue government bonds worth Tk 15 billion as Rupali Bank Limited's defence against the loads of debt handed out to numerous state-owned enterprises (SoEs), much of which remained outstanding for years, even decades.
The bond issuance is part of the present government's move to reform the state-controlled banking industry on its "own wisdom," paying no heed to advice from multilateral lenders, notably the World Bank.
"The bond is the right kind of option we have now for a bank like Rupali," said a finance official.
"The bond will attract 5.0 per cent interest rate. I think the bond offer combined with rights share issuance will give Rupali breathing space enough to stay competitive," added the official who is not authorised to discuss details of the new plan.
The finance ministry came up with the conclusion after reviewing the bank's proposal for recapitalisation submitted during the regime of the last caretaker government.
The public sector companies are blamed for gobbling up major slice of Rupali Bank's troubled loans, which amounted to Tk. 16.30 billion as of June 30 of 2009 fiscal year.
Official figures suggest that the principal amount of problem loans is significantly low--just Tk. 4.97 billion-with the rest being piled up interests.
Finance ministry officials said Rupali's string of woes, including its exposure to the state sector loans, manpower shortage and capital shortfall will be dealt with under the banking sector reform umbrella.
"This is in line with our broad-based banking modernisation plan. It's a formidable challenge for us to restore the financial health of Rupali," another official said.
Officials said Rupali will also be allowed to issue three rights shares against each share held by investors to help the bank jack up its paid-up capital to Tk 5.0 billion as part of an international banking regulation.
Last year, Bangladesh Bank, the central bank, issued an order asking banks to raise the capital base to at least Tk 4.0 billion by 2011, half of which must be in the form of paid-up capital, to meet the Basel II requirement.
The finance officials are hopeful that if rights shares are issued it will help close its capital gap, which is in the space of between Tk 2.0 billion and Tk 2.5 billion.
A banking expert differed with the views, saying the rights share issuance will mostly benefit private shareholders, not the government.
At 93 per cent government stake, Rupali was the first bank to be corporatised 10 years ago and is now operating as a "de facto" nationalised bank.
Officials involved in the process noted that the model for reforming Rupali Bank Limited would be "slightly different" from Sonali, Janata and Agrani, which were made public limited companies in 2007, although still operate as government-owned banks.
An official said future managing director and chief executive officer of Rupali will be picked from outside the bank, preferably from the private sector, but the finance ministry, not the bank's board, will appoint the top post.
He added that even perks of Rupali CEO will be market-based.
The World Bank has been urging the government to corporatise Rupali Bank, insisting that the outcome of corporatisation proved promising.
But the government side remains sceptical, preferring to push ahead with its own reform agenda.