Bangladesh Bank yesterday warned it would curtail the functions of BASIC Bank as per laws if the problem-ridden lender did not improve its deteriorating capital situation.
The central bank held a meeting with the BASIC board in which it conveyed its dissatisfaction over the state bank's capital deficit for three years in a row.
In June, the government gave the bank Tk 400 crore for recapitalisation, but it could not fulfill the minimum capital requirement.
The meeting was part of the central bank's efforts to improve banks' financial health by increasing their capital adequacy ratio (CAR) in line with Basel III requirements.
Basel III, which is set to take effect next year, is a comprehensive list of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen regulation and supervision and reduce risks of the banking sector globally.
BB General Manager SM Rabiul Hassan, Deputy General Manager Ibrahim Bhuiyan and Joint Director Shabari Islam made a presentation of the overall financial condition of BASIC Bank.
BASIC Bank Chairman Alauddin A Majid led the bank's team, which comprised other directors and high officials, at the meeting held at its head office.
The bank's CAR has been in the negative since December 31, 2013 and in June 2015 it hit minus 15.53 percent, according to central bank statistics.
The minimum capital requirement for banks is 10 percent of their risk-weighted assets.
During the period, BASIC's capital deficit was Tk 2,916 crore against its risk-weighted assets of Tk 11,423 crore.
At the meeting, the BASIC board blamed the serious irregularities during the tenure of the previous management for the bank's worsening financial condition.
The new board took over in July last year and realising default loans overnight is not possible, they said, adding that the condition of the bank has been improving gradually.
In all of 2014, the bank realised Tk 126 crore against its bad loans, whereas in three months this year Tk 336 crore was recovered.
The number of loss-making branches too came down to 30 at the end of March from 37 in December 2014.
Once the government provides Tk 2,000 crore as capital in December, the deficit will come to zero. And by December 2016, the bank will be able to maintain the required capital, said its board members.
The presentation also highlighted some other negative sides of BASIC Bank's financial condition.
The bank suffered a net loss of Tk 1,100 crore last year. It already ran up losses of Tk 56 crore in the first three months of this year.
The realisation of Tk 2,999 crore of its loans is uncertain, so it put the amount in a block account after taking BB's permission. But the central bank instructed BASIC to also show the amount as classified loans, which it has yet to do.
The three BB officials also advised the BASIC board to take several steps to increase its capital in preparation of BASEL III