12 banks face capital shortfall in June

Five state-run, two specialised and five private commercial banks suffered capital shortfall at the end of June of this year, indicating their worsening financial health.

“The twelve banks – including state run Agrani Bank, BASIC Bank and Janata Bank, Rupali Bank, Sonali Bank, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank – failed to maintain their required capital during that period,” said a senior official of the Bangladesh Bank.

Industry insiders said those banks are facing capital shortfall due to their high non-performing loans. At the end of June of this year, the non-performing loans in the banking sector stood at Tk 12,5257.57 crore, which is 8.96 per cent of the total disbursed loans.

Experts said 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 at World Bank’s 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.”

Agrani Bank’s former managing director Shams-Ul Islam said, “Capital shortfall is a cancer for the state-run banks and it is true that the deficit could not be reduced.

“But, state run banks are providing 34 government services to the people without any cost. In addition, there are many loans stacked in the government institutions, which is why those banks are facing capital shortfall.”

The banking sector in Bangladesh has maintained the lowest capital adequacy ratio than other South Asian countries – India, Pakistan and Sri Lanka, says the Bangladesh Bank’s Financial Stability Report, 2020.

Recently, the central bank has taken an initiative to sign memorandum of understanding (MoU) with weak banks including those facing capital shortfall.

The central bank will fix a deadline to improve the financial indicator and governance of the troubled banks. On the other hand, the trouble-hit banks must submit their progress report to the regulator from time to time.