Important Business News Extracts September 27 2016
Banks’ capital base weakens in Q2
The capital base of banks has weakened slightly, but remains at a comfortable level, in the April-June quarter (Q2) of this year mainly due to increased non-performing loans (NPLs). The overall capital-to-risk weighted assets ratio (CRAR) of all the banks operating in the country came down to 10.3% in Q2 from 10.6% in Q1 (January-March), according to latest statistics of Bangladesh Bank. Officials said increased credit growth, particularly in the private sector, coupled with higher NPLs pulled down the overall CRAR. The private sector credit growth rose to 16.8% in June 2016 (year-on-year) as compared to 15.6% in April this year. The NPLs rose to BDT 633.7 billion in the quarter from BDT 594.1 billion in Q1. The total regulatory capital increased by BDT 12.7 billion to BDT 768.9 billion during the April-June quarter from BDT 756.12 billion in Q1. However, the overall capital shortfall stood at BDT 6.4 billion as on June 30 as compared to BDT 10.8 billion surplus in Q1 ending in March due to regulatory requirement of increasing the banks’ capital to comply with the Basel-III conditions.
Government forms BDT 2.7 billion Two Step Loan (TSL) refinancing fund for RMG units
The government has formed a Two Step Loan (TSL) refinancing fund in Bangladesh Bank (BB) to strengthen building safety of garment factories through short to long-term finance. Ready-made garment (RMG) units in Dhaka, Narayanganj, Gazipur and Chittagong will get financial assistance from the fund with an interest rate not exceeding 6.0% under Urban Building Safety Project (UBSP), financed by Japan International Cooperation Agency (JICA). The central bank issued a circular on Sunday to this effect, stating that the principal component of TSL fund is 4.129 billion Japanese Yen (BDT 2.68 billion). Under UBSP, JICA will give the concessional ODA loan to the government for provisioning of TSL to use for private sector building safety. TSL will be given to the participating financial institutions (PFIs), which would then re-lend the fund to end-borrowers. Under the special fund, PFIs will be provided with refinance or pre-finance for lending to ensure building safety of RMG factories for short to long-term duration.
The government should not recapitalise the state banks even if they continue to suffer from soaring defaults, experts said yesterday. People who are politically connected have taken significant amount of loans from the state-run banks, and the majority of them have become defaults, said AB Mirza Azizul Islam, a former adviser to the caretaker government. “They took the loans for one purpose and then used the funds for something else, violating the regulations.” Islam’s comments came at the International Conference for Bankers and Academics 2016, jointly organised by the Bangladesh Institute of Bank Management and the Australian Academy of Business and Social Science. The two-day event, which was attended by local and global experts, ended yesterday. The loans given to big borrowers usually end up as defaults, so the banks should focus more on small borrowers, he said. “The banks favoured selected clients to restructure the loans — they should now recover the loans under the legal procedure.” A large number of cases are now pending with the court, he said. Islam also touched upon the interest spread rate: he said it should be decreased to 3 percent from existing 5 percent.
AMCs, trustees to place MFs’ tax issue before MoF, NBR
The securities regulator has asked the asset management companies (AMCs) and the trustees to work together for solving complexities regarding the newly-imposed tax on mutual funds (MFs) through discussion with the authorities concerned, officials said. The regulatory instruction came on Monday at a meeting held at the office of Bangladesh Securities and Exchange Commission (BSEC). Representatives of different AMCs and trustees attended the meeting, chaired by BSEC commissioner Professor Helal Uddin Nizami. “At the meeting, the securities regulator instructed the AMCs and the trustees to place the issue before the authorities concerned,” said an AMC representative. He also said the AMCs and the trustees may take the issue to Ministry of Finance (MoF) and National Board of Revenue (NBR). Another AMC representative said the complexities regarding the newly-imposed tax on the MFs emerged following a circular of NBR. He said as per the circular, the MFs will have to pay 5.0% tax on interest of the amount, kept in bank account for investment purpose. “The MFs may not incur profit from all investments. So, their return will decline, if tax is deducted from any amount, kept in bank account.” He added that a MF will have to pay tax at source during its liquidation, considering the face value of BDT 10 as cost price.
The Asian Development Bank is set to approve $1 billion at the end of this week for a project to lay a 102km rail track from Dohazari in Chittagong to Cox’s Bazar — the lender’s highest allocation for a single project in Bangladesh. Until now, the ADB’s highest allocation for a single project is $700 million; the project was in the power sector. Ecnec has already approved a project to lay a 129km of rail track from Dohazari to Gundum near the Myanmar border via Cox’s Bazar at a cost of Tk 18,034 crore or about $2.28 billion. Of the total cost, the ADB will provide Tk 13,115 crore or about $1.66 billion. However, the ADB will approve $1 billion for the first phase of the entire project. In the second phase, the Manila-based multilateral lender will provide funds for expanding the rail-line to Gundum and deep-sea port at Matarbari, according to the ADB preliminary document.
Government to raise funds through stock market for mega projects in power sector
State minister for power and energy Nasrul Hamid has said the government is eager to raise funds through the capital market for mega projects in the power and energy sector. Speaking at a discussion at Dhaka Club on Sunday night, he urged bourses to be proactive to attract such projects to the capital market. “Don’t sit idle like the Board of Investment. Prepare plan and come to me for listing of power and energy companies. You have to create your market,” said the junior minister for power, energy and mineral resources. He said the government signed agreements for foreign direct investment (FDI) worth 12 billion US dollars in power and energy projects in the last three years. The state minister said power sector requires huge investment as the government has plans to provide electricity to every houses by 2018.
A US-based company CITGO Lubricants has started marketing its products line in Bangladesh to cater to the growing demand for quality lubricants. Move International Limited, the company’s local dealer, will import and distribute the lubricants in the domestic market. The product was launched at a ceremony held in a city hotel Sunday. The audience was told that the 100-year old CITGO is now operating in 55 countries through 200 terminals. It offers more than 600 types of lubricants. Move International’s Chairman Mohammad Julhas and Managing Director Golam Mustafa also attended the ceremony, among others.
Major Currencies Exchange Rates Movement in Last Seven Days
*CURRENCIES AND COMMODITIES ARE TAKEN FROM BLOOMBERG.
ABOUT DHAKA BANK
Dhaka Bank has truly cherished and brought into focus the heritage and history of Dhaka and Bangladesh from Mughal outpost to modern metropolis. Most of its presentation, publications, brand initiatives, delivery channels, calendars and financial manifestations bear Bank’s commitment to this attachment.