BASIC to get Tk 26b recap fund

The government is set to issue Tk 26 billion-worth of bonds to meet capital shortfall of the problem-ridden BASIC Bank as per requirement under the Basel-III provision, officials said.
Finance Minister AMA Muhith approved Wednesday a proposal mooted by the banking division in this regard and asked the finance division to take steps for bond issuance, they added.
Government, as the owner of the bank, will issue 26 bonds valued Tk 1.0 billion each. Against the bonds, namely 'BASIC Bank Recapitalisation Bond', the bank will issue general shares worth Tk 26 billion.
Eight of the bonds will have 10 years' maturity, another eight have 15 years and the rest 10 will have 20 years of maturity period with their ownership being non-transferable.
"We sent a letter and related documents Thursday to the finance division for issuance of bonds after the minister's approval," a banking division official told the FE.
The bank was given bailout in the past, too. In total, it had received from the government Tk 23.90 billion to meet its capital shortage, including Tk 12 billion given in December last for recapitalisation.  
In the recent years some unscrupulous members of the board of directors and top executives allegedly helped in looting billions of taka from the bank through approving loans without necessary collateral.
Such insidious lending also resulted in the swelling of volume of classified loans, negative shifting of level of classified loans, and price decline of collateral given against loans.
As a result, the bank needs to keep high amount of money as provisions that erodes its capital base.
Finance Minister Mr Muhith at a function last Wednesday expressed the hope that the BASIC Bank would be able to come out from the problem it is going through as the present board members and management were doing very well in operation of the bank.
Earlier in September this year, in a letter to the banking division, managing director of the bank Khondoker Md. Iqbal said its capital shortage 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.
Contacted over telephone, Mr Iqbal told the FE that the issuance of the bonds will be a big help for the bank to make a turnaround.
"We don't need any monetary help, because we have a large amount of liquid money in hand. The bond issuance will help us meet capital requirement," he said.
Mr Iqbal said presently foreign banks show no interest to do business with Basic bank. "Once the capital shortfall is met, they will agree to do business with us."
Under the central bank rules, he said, some Tk 19 billion needs to be kept as statutory liquidity ratio (SLR) against which the BASIC has some Tk 31 billion.
"Now we will be able to do something .We are hopeful of making some Tk 100 million to Tk 150 million operating profit by the end of December," the MD said.
When contacted over the capital-shortage conundrum, chairman of Policy Research Institute of Bangladesh (PRI) Dr Zaidi Sattar earlier told the FE it seemed that the public money was 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.
    syful-islam@outlook.com