Sonali, Janata, Agrani fail to meet capital shortfalls

The state-run Sonali Bank, Janata Bank, and Agrani Bank failed to replenish their capital shortfalls till December last year as per their action plans submitted to the Bangladesh Bank.

The central bank in June last year during a memorandum of understanding (MoU) meeting asked four state-owned commercial banks to submit action plans describing how they would meet their capital shortfalls.

The three aforementioned banks failed to implement their plans while the other – Rupali Bank – achieved its target.

Sonali Bank, after last year’s meeting with the central bank, set its capital to risk weighted assets ratio (CRAR) at 10.31 per cent, but its actual CRAR stood at 7.33 per cent at the end of 2022.

Similarly, Janata Bank’s CRAR target was 10.07 per cent, but its actual CRAR stood at 8.14 per cent. Agrani Bank’s CRAR target was 7.17 per cent while its actual CRAR was 4.89 per cent, data from the respective banks shows.

On the other hand, Rupali Bank’s CRAR target was 4.98 per cent, but its actual CRAR stood at 5.2 per cent at the end of 2022.

A senior official of the central bank said the three banks will have to implement their action plans submitted to the banking regulator.

He said the Bangladesh Bank will review the implementation of the plans annually. “After an interim review every year, the banks successfully meeting their targets will be rewarded while the others will be penalised.”

Sonali Bank’s required minimum capital stood at Tk 6,853 crore at the end of 2022, but its regulatory capital amounted to Tk 5,021 crore.

As a result, its capital shortfall was Tk 1,832 crore. But if the regulatory forbearance is not considered, the shortfall will be Tk 5,178 crore.

“We were able to reduce capital shortfall by Tk 1,807 crore in 2022, which is a big achievement,” said Md Afzal Karim, chief executive officer and managing director of Sonali Bank.

He said the bank’s capital shortfall was Tk 3,639.19 crore in 2021, which came down to Tk 1,832 crore at the end of 2022.

The banker said Sonali Bank also reduced its non-performing loans (NPLs) to 15 per cent in December 2022 from 18.5 per cent a year ago.

“As a result, performing loans of the bank increased. Our advance-to-deposit (AD) ratio increased to 60 per cent at the end of December 2022 from 51 per cent in the same month of the previous year. As a result, our net interest margin turned positive for the first time,” Afzal explained.

He said the bank would bring down capital shortfall to zero within 2027 as per the deadline set by the International Monetary Fund (IMF).

Janata Bank’s required minimum capital was Tk 8,082 crore and regulatory capital, including regulatory forbearance, was Tk 6,582 crore in December 2022.

As a result, its capital shortfall was Tk 1,500 crore. But the actual capital shortfall was Tk 8,334 crore.

The bank is facing several challenges, including a high amount of NPLs, which stood at Tk 14,387 crore at the end of December last year.

Its Managing Director and Chief Executive Officer Md Abdul Jabber told The Business Post he is not aware of the bank’s financial health because he joined recently.

Agrani Bank’s required minimum capital was Tk 7,311 crore while its regulatory capital, including regulatory forbearance, stood at Tk 3,572 crore at the end of last year.

But its actual regulatory capital was negative Tk 1,500 crore.

The bank’s former managing director and chief executive officer Shams-Ul Islam recently told The Business Post capital shortfall is a cancer for the state-run banks and it is true that it could not be reduced.

“However, these banks are providing 34 government services to the people without any cost. In addition, many government institutions have borrowed from state-run banks but have not repaid the loans, which is why these banks are facing capital shortfalls.”

Rupali Bank’s capital shortfall was Tk 2,107 crore, including regulatory forbearance, at the end of December last year. However, it achieved the target of its action plan.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office, said the capital base of government banks and some new private ones is not good owing to their high amount of NPLs. But the capital base in the banking sector is not bad overall, he said.

Bangladesh’s banking industry posted the lowest capital adequacy ratio (CAR) compared to its South Asian peers yet again in 2021, a trend that continued for at least five years, said the central bank’s Financial Stability Report 2021.

An IMF mission is currently visiting Bangladesh as the global lender has approved $4.7 billion in loans for the country. Bangladesh has already received the first tranche.

The IMF team expressed dissatisfaction over the weak capital base of the state-run banks and their recapitalisation during meetings with different stakeholders, including the Bangladesh Bank.

This is the first of a three-part series. The second and third part will be published tomorrow and the day after tomorrow respectively