SBAC Bank to debut with default loan burden

South Bangla Agriculture & Commerce Bank Ltd (SBAC), a fourth-generation bank, is all set to make its debut on the capital market on Wednesday, with a huge burden of default loans on its shoulders.

It is the second fourth generation bank to hit the trading floors of Dhaka and Chittagong Stock Exchanges.

According to the Dhaka Stock Exchange (DSE), the bank raised Tk 100 crore from the public through 10 crore IPO shares, which will be invested in government treasury bills.

Launched in 2013, SBAC Bank has joined the capital market at a time when its defaulted loans reached peak with provision shortfall.

In 2015, the bank’s defaulted loans were at Tk 2.23 crore.

In a span of five years, the bank’s default loan volume shot up to Tk 345.81 crore last year.

At the end of March this year, the default loans increased by another Tk 4 crore to Tk 349 crore, which is 6.11 per cent of its total loan disbursement.

In 2020, the bank suffered Tk 57 crore in provision shortfall.

However, the bank has been continuously making a profit of over Tk 90 crore for the last 5 years, despite no increase in profit after tax.

SBAC Bank’s last year’s profit was at Tk 95.2 crore, which is Tk 1.6 crore lower than that of the previous year.

Asked about the high volume of defaulted loan, SBAC Bank Managing Director Mosleh Uddin Ahmed told The Business Post that the problem was caused by a large borrower last year.

Saying that a 5 per cent default loan is considered normal in the banking sector, Mosleh Uddin added that the bank was now working to bring down the ratio below 5 per cent this year.

Earlier, the Bangladesh Financial Intelligence Unit (BFIU) of the central bank froze bank accounts of SBAC Bank Chaiman SM Amzad Hossain and his family members, who are in the bank’s board of directors.

BRAC EPL, a leading stock brokerage company, in a study on the bank said that such an increase in SBAC Bank’s default loans comes as a surprise as most commercial banks in the country witnessed a decrease in non-performing loans in 2020. The study also warned of tough days ahead as the bank works intensely with the SME sector, which has been hit hard by the Covid-19 pandemic.

In addition, a 9 per cent loan interest cap remains another challenge for the bank, as it will be difficult to increase the income if the interest rate on such loans is kept in single digit, it noted.

The SBAC Bank disbursed 38.8 per cent of its total loans to the SME sector. On the other hand, the number of defaulters has also increased due to lack of efficiency about debt management, the research added.

In this context, the managing director of the bank said, “We have made arrangements to lend from the incentive package to almost all of our customers. If we become successful in dealing with the pandemic, the economy will turn around.”

The study also observed that the SBAC Bank’s income from disbursed loans came down to less than half in 2020, compared to the previous year.

Though the net income from loan was Tk 251 crore in 2019, it came down to Tk110 crore last year. The bank continues to witness decline in profit even in the first half of the current year.

According to the DSE data, the bank’s net profit after tax stood at Tk 20.95 crore and basic earnings per share (EPS) stood at Tk 0.31 in the first 6 months.

It reported a net profit of Tk 33.88 crore after taxation, and basic EPS of Tk 0.49 for the same period of the previous year. Bangladesh’s banking industry is saturated with 60 players in the market. The current industry loan size is Tk 11 lakh crore.

After seven years of operation, SBAC Bank has a loan portfolio of Tk 5,700 crore, which is 0.5 per cent of the total industry loan.

The stock exchange regulator Bangladesh Securities and Exchange Commission (BSEC) approved IPO of SBAC Bank on May 9 this year. The bank’s IPO application started on July 5 and continued till July 11.