11 banks face Tk 25,385cr in capital shortfall

Eleven scheduled banks, including seven from the public sector, faced a combined capital shortfall of Tk 25,385 crore in the second quarter of 2021, exposing their worsening financial health.

The banks are – Bangladesh Krishi Bank, Sonali Bank, Agrani Bank, ICB Islamic Bank, Rajshahi Krishi Unnayan Bank, BASIC Bank, Bangladesh Commerce Bank, Rupali Bank, Janata Bank, Padma Bank, and AB Bank.

Bangladesh Krishi Bank has the highest capital shortfall of Tk 11,843.97 crore as of June this year, up from Tk 11,229.17 crore three months earlier. 

Bangladesh Krishi Bank provides low-interest loans to the marginal farmers, said Ali Hossain Prodhania, the recently retired managing director of the Bank.

He said that the operational cost of these small loans is much higher than other loans. As a result, the bank has been continuously facing losses. 

“The government will have to meet the capital shortfall,” said Prodhania. 

State-run Agrani Bank faced a Tk 1,960.23 crore capital shortfall as of June this year. Contacted, the bank’s Managing Director Mohammad

Shams-Ul Islam said that capital shortfall is cancer in state-run banks and it is true that the deficit could not be reduced.

Mohammad Shams-Ul Islam said, “We are providing 34 government services to the people without any cost. In addition, there are many loans stacked in the government institutions.”

If we can recover those loans, there would be no capital deficit, he added. 

As of June this year, the capital shortfall of BASIC Bank stood at Tk 1,927.28 crore; Janata Bank’s at Tk 345.04 crore; Rupali Bank’s at Tk 664.94 crore; Sonali Bank’s at Tk 3,557.86 crore; AB Bank’s at Tk 329.52 crore; Bangladesh Commerce Bank’s at Tk 1,146.21 crore; ICB Islami Bank’s at Tk 1,642.46 crore; Padma Bank’s at Tk 461.49 crore and RAKUB’s at Tk 1,506.40 crore, BB data show. 

The capital adequacy ratio of the banking sector stood at 11.57 per cent as of June, down from 11.67 per cent three months earlier, as per BB data.

Experts said that 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.

Capital base in the overall banking sector was not bad. Still, the state-run banks and some new banks’ capital base was not good owing to their high amount of non-performing loans, says Zahid Hussain, former lead economist of the World Bank’s Dhaka office.

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.