Krishi Bank to raise Tk10,318cr via bonds to meet capital deficit

Bangladesh Krishi Bank (BKB), the major state owned specialised lender, is issuing a Redeemable Zero Coupon Bond worth Tk 10,318.16 crore next month to meet its capital shortfall.

The state-owned BKB will primarily issue redeemable 10-series zero coupon bonds under its recapitalisation scheme at 4.0 percent yield from the next month, said a high official of the Treasury and Debt Management Wing of the Ministry of Finance.

The Wing and the BKB officials are working together on materialising the issuance of the BKB bond through Bangladesh Bank and that works have matured to this end, he said.

Finance minister AHM Mustafa Kamal approved BKB Redeemable Zero Coupon Bond on September 3. A specialised bank branch of the Financial Institutions Division (FIDs) under the finance ministry issued a letter to the Cash Debt Management Wing to take necessary measures for the disbursement of the government bonds in favour of BKB. The letter was signed by senior assistant secretary of FID, Sheikh Siddiqure Rahman.

According to the proposal, the bond’s maturity period will be 10 years from the date of issuance. It could be redeemed in 10 equal instalments. A total of Tk 1272.10 crore could be paid to the beneficiaries in a decade, including yields.

A zero-coupon bond is a debt security that does not pay interest but trades at a deep discount, rendering a profit at maturity, according to the Investopedia.

According to a government instruction, the BKB gives loans to crop, fisheries and livestock sectors at a maximum of 9.0-per cent interest, though the cost of funds is 9.78 percent (provisional).

The specialised bank has been running its loan disbursement at a lower rate of interest than its actual cost of funds for decades.

The operating loss of the bank has been widening annually due to unavailability or partial availability of re-capitalisation funds, according to the bank document.

The BKB is contributing to the country’s Gross Domestic Product and marching towards sustainable development goals through disbursing extended farm credits, the bank documents said.

The bank is providing loans to crop, fisheries, livestock and SME sectors that are meant for attaining food security and strengthening rural economy.

The zero-coupon bond is needed to meet the bank's existing capital shortfall and to accomplish the extended farm credits and expedite the growth of the rural economy, added the letter.

According to the Bangladesh Bank, the BKB had a capital shortfall of more than Tk 10,318 crore (provisional) as of June 2020.

A high official of BKB, who requested anonymity, said, "We will get to the final stage in seven days for the issuance of the bond".

“If the government issues the bond in favour of a major farm bank, the capital strength scenario of the country's overall banking sector will change significantly,” the official said.

The disbursement of farm loans by the BKB surpassed its target in the last fiscal year. It achieved 113 percent credit disbursement growth.

The total target was outlined for the bank at Tk 5,500 crore for fiscal year (FY) 2019-20, and Tk 6,000 crore for FY 2020-21, respectively.

The bank disbursed more than Tk 2,381 crore among 18.5 lakh families in FY 2019-20.

It has disbursed over Tk 997 crore loans or 83.19 percent against its set target under the central bank's 'special incentive re-financing scheme' for flower, fruit, grain, fish, poultry, dairy farm and livestock sub-sectors until October 07, 2020.