Krishi Bank seeks Tk 103b zero-coupon bond

The Bangladesh Krishi Bank (BKB) has requested the government to issue redeemable zero-coupon bond worth Tk 103.18 billion to meet its capital shortfall.

Officials said the state-owned BKB has sought the redeemable 10-series zero-coupon bond under re-capitalisation at a 4.0-percent yield.

The product's maturity period will be 10 years from the date of issuance. It will be paid in 10 equal instalments, Tk 12.72 billion, including yield annually.

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-percent interest rate, although the cost of fund is 9.78 percent (provisional).

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

On the other hand, the operating loss of the bank has been increasing annually due to unavailability or partial availability of re-capitalisation fund, including subsidy, according to the bank document.

The BKB is contributing to the gross domestic product, including implementation of sustainable development goals, through disbursing extended farm credit, the bank said in a letter sent to finance ministry.

It has been disbursing loans to crop, fisheries, livestock and SME sectors aiming to ensure food security and strengthen rural economy.

Zero-coupon bond is needed to meet the bank's existing capital shortfall to fulfill the extended farm credits and expedite the rural economy, added the letter.

According to the Bangladesh Bank, the BKB had a capital shortfall of more than Tk 103.18 billion (provisional) as of June 2020.

BKB managing director Md Ali Hossain Prodhania has recently submitted a proposal to the ministry, seeking its support to this effect.

When asked, Mr Prodhania said, "We've requested the government to issue redeemable 10-series zero-coupon bond instantly as the BKB has the highest capital shortfall in the banking sector."

If the government issues the bond in favour of the BKB, he said, the capital scenario of the country's overall banking sector will change significantly.

The disbursement of farm loans by the BKB has surpassed its target in the last fiscal year. It achieved 113 per cent of its target set by the central bank.

The total target was fixed for the bank at Tk 55 billion for fiscal year (FY) 2019-20, according to the data available with the central bank.

The regulator has set for the bank a Tk 60-billion agriculture credit target for FY 2020-21.

The bank disbursed more than Tk 23.81 billion among 0.185-million families in FY 2019-20.

It has disbursed over Tk 9.97-billion loans or 83.19 per cent against target under the central bank's 'special incentive re-financing scheme' for flower, fruit, grain, fish, poultry, dairy farm and livestock sectors until October 07, 2020.

The fund size of the scheme for agriculture sector is Tk 50 billion.