The country's banking sector capital base has weakened further in the first quarter of 2023.
At the end of March of this year, banks’ capital adequacy ratio (CAR) stood at 11.23 per cent, down from 11.82 per cent three months earlier, show latest data from the Bangladesh Bank. CAR is a comparison of the available capital that a bank has on hand to its risk-weighted assets.
Industry insiders say the banks’ capital base continues to weaken in recent years due to the high amount of non-performing loans, adding that the NPLs have grown steadily despite the government’s pledge to bring them down.
Finance Minister AHM Mustafa Kamal in January 2019 had said the NPLs will not grow by even a paisa. During that period, the country’s banking sector had Tk 93,911 crore as NPLs.
At the end of March this year, NPLs stood at Tk 1,31,620 crore or 8.80 per cent of the total disbursed loans, marking a significant 16.02 per cent increase year-on-year (YoY), according to the latest Bangladesh Bank (BB) data.
March’s figure is the second highest since Bangladesh achieved independence in 1971. NPLs in the September quarter of last year had hit an all-time high at Tk 1,34,396 crore.
Experts say foreign investors usually monitor the ratio of required capital and default loans of banks before investing in any country, adding that a low capital adequacy ratio discourages them from investing.
Zahid Hussain, former lead economist of World Bank Dhaka Office, said the capital base in the overall banking sector is not that bad. But the state-run banks and some new banks’ capital base were not good owing to their high amount of non-performing loans.”
At the end of March, the capital base of state run banks stood at 5.90 per cent, CAR in private commercial banks stood at 13.08 per cent, CAR of foreign banks stood at 31.48 per cent.
However, CAR of three specialised banks was negative at 38.35 per cent.
Bangladesh’s banking sector has maintained the lowest capital adequacy ratio (CAR) of its South Asian peers, according to the Bangladesh Bank’s Financial Stability Report 2020.
According to regulator guidelines, banks have to maintain a minimum capital adequacy ratio – 12.50 per cent of their total capital reserve – to cover risk exposure by 2019 in line with the BASEL III requirement.
But the country’s banking industry has failed to fulfill the requirement.
Till March of this year, eleven banks-Bangladesh Krishi Bank, Agrani Bank, Rupali, Janata, Sonali, BASIC Bank, Rajshahi Krishi Unnayan Bank, ICB Islamic Bank, National Bank, Bangladesh Commerce Bank, and Padma Bank faced capital shortfall.
Aside from taking an initiative to sign memorandums of understanding (MoU) with weak banks, including those facing capital shortfalls, the regulator will set deadlines to improve the financial indicator and governance of troubled banks.
