BB under pressure to allow another new bank
It has already started the process of issuing licences to three banks
The finance ministry has forwarded yet another proposal for a new bank to the Bangladesh Bank for its vetting -- at a time when the financial health of the nine fourth generation banks is deteriorating.
The proposal comes as the central bank is thick in the preparations for issuing licences to three new banks -- Bangla Bank, People's Islami Bank and Police Bank -- following instructions from the government.
In its response to the finance ministry on December 18, the central bank said the current precarious condition of the nine banks that most recently got the licence should be considered before allowing yet another bank.
The capital base of the nine banks, which got licences in 2013, is not good, with two of them being currently on life support, according to the BB letter, a copy of which has been obtained by The Daily Star from the finance ministry.
On the same ground, the BB had earlier turned down proposals from Bangla Bank and People's Islami Bank. But it had to go back on the decision following pressure from the government higher-ups, BB officials said.
To be christened the Citizen Bank, the sponsors had submitted the proposal to the central bank way back in November 2011, according to BB officials.
Then recently, Mohammed Iqbal, chairman of the proposed bank, sought recommendation from the finance ministry for the licence. Finance Minister AMA Muhith forwarded the letter to the central bank for its opinion.
Typically, when the need for a new bank arises, the BB in its capacity as the banking regulator publishes advertisements in newspapers seeking applications from interested parties.
It followed this process in case of the fourth generation banks, floating advertisements in 2011. But this time, the BB is yet to make such proclamation and yet it received four unsolicited applications for new banks.
The central bank had tagged a number of conditions for the fourth generation banks when giving them the licences in 2013.
For instance, the BB had asked the banks to disburse at least 5 percent of their total loans to the agricultural sector every year and spend at least 10 percent of their net profit on underprivileged people under their corporate social responsibility programmes.
They were also asked to issue initial public offering equivalent to their sponsors' capital within three years of their establishment.
Weighed down by poor performance, none of the new banks have fulfilled the conditions, the letter said.
As the financial health of Farmers Bank and NRB Commercial Bank continued to worsen, the BB has been forced to take "controlling measures" on them, it said. The two banks have recently restructured their boards in line with the central bank directives.
Besides, the BB board of directors in 2013 had resolved not to allow any new bank, said the BB letter.
Despite the board's decision, Shimanto Bank, owned by BGB Welfare Trust, was given licence last year as part of the prime minister's commitment to the organisation.