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14th-Feb-2020

Move to bring troubled SoBs in stock market draws flak

By Special Correspondent

The government's move to bring four public banks -- Sonali, Janata, Agrani, BDBL -- to the share market would not bear any efficacious result when investors' confidence hit rock-bottom due to continues fall in share prices amid poor corporate earnings and crisis in the financial sector, say market analysts.
Right now, they pointed lack of investors' confidence to the biggest problem of the capital market saying it only caused by absence of good governance in the financial sector and listing of poor companies. "So, enlisting of state-owned banks (SoBs) which are struggling with low capital and mountain of bad loans, would do little to boost investors confidence rather worsen their owes," they added.
The analysts are also skeptical of accomplishment of the fresh government move (to bring the public sector banks in the stock market) as several similar moves did not see any light in the past.
"The move lacks any rationale when financial condition of state-owned banks remained poor and even they are not eligible for listing on the stock exchange as per the rules of Bangladesh Securities and Exchange Commission (BSEC)," economist and share market analyst Prof Abu Ahmed told The New Nation.
The move, however, came as a big surprise for him as the banks are incurring losses and depend largely on government's bailout funds for recapitalisation for years. "In this context, they (SoBs) cannot get listed in the capital market," he said, requesting the Finance Minister to clear how they can get listed.  
When asked, Prof Abu Ahmed said, "Listing of poor companies would not boost investors' confidence, rather it can deepen the crisis of the market further. Only listing of profit making public companies can help boost the confidence and have positive impact on the bearish market."
He also urged the government to bring the multinational companies to the share market for its long-term benefit.
"Multinational companies are doing good business here and also making hefty profit every year. The government should take immediate steps to bring them to the stock market. In case of their apathy, they should be slapped with high taxes," Abu Ahmed said.
Earlier, the government decided to offload 25 per cent stakes of the four SoBs in stock market by September this year in a bid to boost the plunging capital market.
Commenting on the issue, economist Dr Zahid Hussain said, "Investors always want to invest in good stocks with the hope to make profit and capital gain. But the financial health of the state-owned banks is not such a position that can attract investors."
He cited that public banks account for 50 per cent of the banking sector's total defaulted loans. Right now, they are running with huge capital and provision shortfall, and poor corporate governance.
"Lack of investor's confidence contributes to the current crisis of the stock market. The crisis is 'deep rooted' and it forced both local and foreign investors to quit," observed Dr Zahid Hussain, former lead economist of World Bank's Dhaka office, adding that enlisting of state-owned banks on the capital market may bring a short-lived positive impact but in the long run it may not bear any fruit unless regulatory and institutional governance of concerned bodies are improved.   
Former Chairman of Chattogram Stock Exchange Muhammad Abdul Mazid supported the government move saying it may have some positive impact on the market when it lacks adequate number of listed companies.
"Their entry in the capital market may be eased the supply side constrain. But I am in doubt whether their shares can be floated finally in the market as many similar attempts by the government went in vain in the past," he said.
Mazid, a former NBR Chairman, observed that for long senior bureaucrats who traditionally sit on top posts of the state-owned enterprises (SoEs) created bureaucratic tangle on the way to their listing.
"Many meetings were held by the government previously to offload shares of SoEs. I also took part in such meetings during my chairmanship of NBR. But no outcome was produced as bureaucrats override the government's decision.
If the SoEs go public, the government officials and employees working there will come under the accountability. As a result, their facilities and financial benefits can be curtailed. And this is why they are opposing the enlistment. Only a government's strong political will can produce a good result in this regard," Mazid added.
Raising the issue of regulatory compliance before SoBs enlistment, Dr. Rashed Al Mahmud Titumir, a professor of the Department of Development Studies at Dhaka University, said, "The government may decide on their listing process whether it would be book-building or initial public offering (IPO). But any of such process must follow proper rules and procedures. A proper auditing on the banks is a must to ensure compliance."
He also said that the government is desperate to raise funds from any sources in view of huge revenue shortfall. The Parliament has already passed a bill allowing the government to use the surplus funds of different state-owned enterprises.  "The government is going to sell stakes of the four public banks in a fresh bid to raise funds from the capital market," Titumir opined.  
Financial conditions of Sonali, Janata, Agrani and BDBL at a glance:
State-owned Sonali Bank is the largest bank in the country and it paid-up capital is Tk4,530 crore.
At the end of September 2019, the total non-performing loans of Sonali Bank stood at Tk12,747.04 crore or 29.27 per cent of its total outstanding loans, according to the Bangladesh Bank.  
The bank was running with Tk 2,056.18 crore capital shortfall while its operating profit stood at Tk 1,730 crore last year.
Bangladesh Development Bank Ltd (BDBL) is a state-owned specialized bank and its non-performing loans stood at Tk763.71 crore at the end of December last year, which is 38.22 per cent of its total outstanding loans. BDBL operating profit stood at Tk 40.07 crore last year.
State-run Agrani Bank's paid-up capital stood at Tk 2,072 crore, according to the bank's balance sheet as on December 31, 2018. Agrani Bank's non-performing loans stood at Tk 6,235.72 crore or 16.15 per cent of its total outstanding loans and its capital shortfall stood at Tk 787.79crore at the end of September last year.
State-owned Janata Bank's paid-up capital stood at Tk 2,314 crore at the end of 2018. But it held the highest amount of default loans of Tk 21,660.06 crore (44.57 per cent of the total outstanding loans) among all the public banks at the end of September last year.
The bank's capital shortfall stood at Tk 933.34 crore at the end of September 2019.