Rupali Bank problems to be solved without WB help
Monday, 14 December 2009
A Z M Anas
The government has deflected a World Bank (WB) advice to reform the troubled Rupali Bank, saying it is already "turning the corner" without outside advisory services, officials said Sunday.
"We don't need the World Bank advice. The government can take care of it," an official at the Finance Ministry said.
The official said that even the government would not lean on the global lender for financial support for Rupali's recapitalisation and issue bonds instead for the purpose.
Last year, according to official figures, Rupali churned out more than Tk 1.0 billion in operating profits, even though it has loads of bad debts that amounted to Tk 6.30 billion as of June 30 of 2009 fiscal year.
The government's stance came as a WB mission pushed for securing management support for Rupali "as soon as possible" through the appointment of managing director and four general managers in key areas.
The WB mission visited Bangladesh between November 15 and 25 to assess the progress on the banking reform being carried out in the country.
The previous BNP government, at the behest of the WB brought Rupali at the point of sale but the deal fell through, following the buyer's delay in making payments.
Critics say still the three state-run banks are not performing at the satisfactory level, compared to the private banks, which are racking up huge profits while following international best banking practices.
"A substantial amount of money is finding its way into the pockets of costly consultants. But the kind of management support provided to three banks has made little difference to their health," the official who is not authorised to speak to the press said.
No WB official was immediately available for comments.
"The bank's expectations for radical transformation had to be tempered by the lack of similar commitment from the government which clearly appeared unprepared or unwilling to go toe to toe with the bank's initial approach for radical restructuring of the banking sector," said an internal assessment of the WB.
Officials said the finance ministry has agreed to issue Rupali Bank Limited the government bonds worth Tk 15 billion as defence against the loads of debt of numerous state-owned enterprises (SoEs).
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.
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 the Basel-II requirement.
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.
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.
The WB has been urging the government to corporatise Rupali and also not to "reverse the gains" achieved through the corporatisation of Sonali, Janata and Agrani.
The government has deflected a World Bank (WB) advice to reform the troubled Rupali Bank, saying it is already "turning the corner" without outside advisory services, officials said Sunday.
"We don't need the World Bank advice. The government can take care of it," an official at the Finance Ministry said.
The official said that even the government would not lean on the global lender for financial support for Rupali's recapitalisation and issue bonds instead for the purpose.
Last year, according to official figures, Rupali churned out more than Tk 1.0 billion in operating profits, even though it has loads of bad debts that amounted to Tk 6.30 billion as of June 30 of 2009 fiscal year.
The government's stance came as a WB mission pushed for securing management support for Rupali "as soon as possible" through the appointment of managing director and four general managers in key areas.
The WB mission visited Bangladesh between November 15 and 25 to assess the progress on the banking reform being carried out in the country.
The previous BNP government, at the behest of the WB brought Rupali at the point of sale but the deal fell through, following the buyer's delay in making payments.
Critics say still the three state-run banks are not performing at the satisfactory level, compared to the private banks, which are racking up huge profits while following international best banking practices.
"A substantial amount of money is finding its way into the pockets of costly consultants. But the kind of management support provided to three banks has made little difference to their health," the official who is not authorised to speak to the press said.
No WB official was immediately available for comments.
"The bank's expectations for radical transformation had to be tempered by the lack of similar commitment from the government which clearly appeared unprepared or unwilling to go toe to toe with the bank's initial approach for radical restructuring of the banking sector," said an internal assessment of the WB.
Officials said the finance ministry has agreed to issue Rupali Bank Limited the government bonds worth Tk 15 billion as defence against the loads of debt of numerous state-owned enterprises (SoEs).
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.
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 the Basel-II requirement.
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.
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.
The WB has been urging the government to corporatise Rupali and also not to "reverse the gains" achieved through the corporatisation of Sonali, Janata and Agrani.