Basic Bank again seeks Tk 26b to meet capital shortage

Problem-ridden Basic Bank has again sought Tk 26 billion afresh to meet its capital requirement under Basel-II, officials said.
The bank's managing director Khondoker Md. Iqbal in a letter to the Ministry of Finance this week made the request asking for the money either in cash or bond form.
In the past, the bank was given Tk 23.90 billion to meet its capital shortage. Last time in December 2015, Tk 12 billion was given to the bank for the same.      
In the letter, Mr Iqbal wrote that under the Bank Company Act 1991, scheduled banks are required to keep necessary capital set by the central bank.
Identifying the causes of capital shortage of the bank, he said in the recent years loans were sanctioned without following proper rules which resulted in increased volume of classified loan, negative shifting of the level of classified loan, and price decline of collateral given against loans.
As a result, he said, the amount of provision has increased against classified loans.
He also wrote that the bank has adequate amount of liquid money but foreign banks and financial institutions are not cooperating in banking affairs of the Basic Bank as it has capital shortage.
Mr Iqbal also mentioned that due to the capital shortage, the level of the bank's CAMELS rating and credit rating are gradually declining forcing local and foreign banks to suspend credit lines.
As a result, he said, the bank is facing complexity to provide foreign trade-related services to the customers.
He mentioned that foreign trade is one of the main ways of earnings for banks which the Basic is now failing to do because of its image crisis caused due to capital shortage.  
 When contacted, Mr Iqbal did not want to comment on this issue.
 However, a senior official of the bank told the FE Thursday that the bank has enough liquid money but needs the government's help to meet requirement 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 which is much higher than the set ratio," he said.
He said the bank will prefer bond instead of cash money from the government to meet the capital shortage.
"The bank has already made mentionable progress after facing the challenges caused by irregularities in the past. We are hopeful of making operating profit by this July," the official noted.
When contacted, chairman of Policy Research Institute (PRI) Dr Zaidi Sattar earlier told the FE it seems that 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 to the wrong hands through corruption. It's not justified at all," he said.
Terming it as misallocation of resources Mr Sattar said the fund could have been invested in other development sectors if repeated recapitalisation of banks were not needed.
"The scams in banking sector have adverse impact on overall economy of the country," he said.
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