Country's financial sector waylaid by Covid

Expenses of banks and financial institutions of the country increased but their income decreased as the economic activities across the world have been waylaid by Covid-19. In Bangladesh, banking transactions have reduced significantly in the last eight months (March to November), defaulted loans deplorably spiked and big discounts have been offered for debt collection in a similar fashion.

Due to these reasons, the ability of financial sector to deal with risks has decreased thereby rendering the sector vulnerable.

The latest information regarding the dire state of the financial situation of the country has been highlighted in the "Financial Stability Report of Bangladesh Bank". The report was released on Tuesday. The Bangladesh Bank publishes the report in every three months. This latest report has been prepared by analysing the data till June.

The report depicts the adverse impact of the pandemic on world economy as well as the country's trade and commerce. It is said that the overall momentum of the country's economy came to a standstill due to coronavirus pandemic. Due to various steps taken by the government and the central bank, economic activities have started to turn around again. As a result, transactions in the financial sector are also increasing.

According to the report, despite the decline in imports amid coronavirus pandemic, overall export earnings and remittance inflows have increased. In consequence, the value of money against dollar has increased. Banking activities in coronavirus have come to a standstill since last March. The situation began to turn around again in May when economic activity resumed on a limited scale.

Although the central bank has advised not to increase the number of defaulters in order to deal with the effects of deadly pandemic but even then defaulted debt has increased. Till last March, the rate of defaulted loans has increased from 9.03 percent to 9.16 percent.

The top five banks of the country accounted for 45.5% of the total defaulted loans in June which was 44.3% in March. In three months, the defaulted loans in the top 5 banks have increased by more than 1 percent. Of the total defaulters, the top 10 banks had 63.4% in June compared to 63.1% in March. The quality of assets of banks is declining due to the increase in non-performing loans which is increasing the capital deficit in turn. Out of the 57 banks, 36 have adequate capital but the remaining 21 banks could not maintain reserve of capital.

In the banking sector, 8% of the total defaulted loans have become non-performing with 4.5% suspicious and 6.5% low quality. Recovery of the loan has been suspended till next December as per instruction of the central bank. As a result, the loans remain unrecovered. This may increase the default debt in the future alongside deficit of the banks as well as the capital deficit. The level of risk will also be triggered.

According to the report, the financial institutions are in even worse shape during the last eight months. Out of the 33 financial institutions, liquidity has increased in 8 institutions and decreased in 25 institutions. Income has increased in 13 and decreased in 20 institutions. Wealth reduced in 20 institutions while that increased in 13 institutions. Total assets have increased in 10 institutions and decreased in 23 institutions. Liabilities increased in 20 but decreased in 13 institutions. Deposits decreased in 28 institutions but increased in 8. Capital increased in 25 institutions and decreased in 8. Total liability has increased in 20 institutions but decreased in 10. Defaulted loans of the institutions were 10 percent in March which increased to 12 percent in June, the report said.

ask/wi