Banks’ capital base weakens further

The banking sector’s capital to risk-weighted asset ratio (CRAR) weakened further in the September quarter of last year due mainly to growing bad loans in the sector.

At the end of September last year, Banks’ CRAR stood at 11.01 per cent, down from 11.15 per cent in the June quarter of last year, according to the Financial Stability Assessment Report unveiled by the central bank on Sunday.

The CRAR was 11.41 per cent in the March quarter of last year.

However, the banking sector’s total regulatory capital exceeded the minimum capital requirement, said the BB report.

The central bank data showed that eleven banks collectively faced a capital shortfall of Tk32,606 crore in the September quarter.

Industry insiders said that the banks’ capital base has weakened due to high non-performing loans in the banking sector.

The latest Bangladesh Bank data has revealed that the country’s NPLs stood at Tk134,396 crore until the end of September last year, a significant year-on-year increase of 32.86 per cent. September’s figure is the highest since Bangladesh achieved independence in 1971.

The central bank report said that the resilience of the financial system of Bangladesh to notable risks and vulnerabilities during the July-September quarter of last year.

The banking sector showed a mixed trend in the review quarter compared to the previous quarter as asset size and profitability increased while asset quality, measured by gross NPL ratio, deteriorated, the report showed.

A handful of banks continue to hold a large portion of gross NPLs in the quarter, said the report, adding that NPL concentration in top 5 and top 10 banks increased slightly.

The gross NPL concentration ratios of top 5 and top 10 banks were 49.35 per cent and 64.51 per cent respectively in this quarter.

The central bank in its report said that the country has been facing a number of challenges, largely emanating from the global macro-financial uncertainty.

Banks need to cooperate in maintaining exchange rate stability in the forex market, said the report, adding that the caution in opening import LCs (letters of credit) is most warranted and import payments need to be made in time so that no country or reputation risk arises.

The central bank governor Abdur Rouf Talukder said in the report that due diligence needs to be ensured in foreign trade transactions so that proper values get reflected in export and import L/Cs.

He said that prudence needs to be applied in case of expenses in local currency too.

“We all are aware that public institutions, in line with the stance of the government, have commenced the

stance of reducing operating expenses in order to soften the adverse impact of the global dynamics,” the BB governor said.