Burgeoning capital deficit paralyzes 15 banks

 
Capital shortfall in 15 banks increased to Tk 33,743 crore at the end of June as a surge in non-performing loans weakened financial base of the entities. Among these banks, five state-owned commercial banks, two state-owned specialized banks, five private commercial banks and two foreign banks find themselves grappling with this capital deficit.

Previously, capital shortfall in 11 banks was Tk 33,575 crore at the end of March.

The situation is particularly critical for some banks, with Bangladesh Krishi Bank leading the pack with a capital shortfall of Tk 15,540 crore, followed by Agrani Bank at Tk 3,767.8 crore, Rupali Bank at Tk 2,230 crore, Janata Bank at Tk 2,189 crore, BASIC Bank at Tk 2,352 crore and RAKUB at Tk 2,385.9 crore as of June. Additionally, Sonali Bank's capital shortfall witnessed a substantial decrease from Tk 2,344 crore in March to Tk 10.61 crore in June.

ICB Islamic Bank, National Bank, Bangladesh Commerce Bank and Padma Bank also face significant capital shortfalls of Tk 1,812 crore, Tk 1,379.6 crore, Tk 1,313.8 crore and Tk 497 crore respectively at the end of June 2023.

Furthermore, newly established Bengal Commercial Bank and Citizens Bank struggle with capital shortfalls of Tk 87.9 crore and Tk 97.1 crore respectively. Habib Bank and National Bank of Pakistan find themselves in a less severe, but still concerning, position with shortfalls of Tk 36.3 crore and Tk 42.45 crore respectively.

A surge in non-performing loans (NPL) in the country's banking sector weakened the financial base of the banks, Bangladesh Bank officials said.
As the banks had to keep higher provision against defaulted loans, it widened shortfall in the banks' capital accordingly, they said.

According to Bangladesh Bank (BB)data released on Sunday, defaulted loans soared to Tk 1,56,039 crore at the end of June 2023 from Tk 1,31,620 crore in March and Tk 1,20,656 crore at the end of December 2022, due mainly to prevalent irregularities, weak management practices and alleged government's apathy.

The NPL ratio now stands at 10.11 per cent of the outstanding loans, up from 8.8 per cent in March, signifying a worrisome trend.

Regulatory moderations have contributed to a large volume of loans remaining unclassified, potentially exacerbating the banks' capital shortfall in the future, bankers said. To address this, the central bank should adopt a more stringent approach towards ensuring adequate provisions against loans based on their classification, they said.

According to existing regulations, banks are required to maintain a minimum capital adequacy of 10 per cent against their risk-weighted assets.
Failure to do so may lead to punitive measures, including penalties imposed by the central bank.

It is imperative that these regulations are enforced rigorously to safeguard the stability of the banking sector. The BB data showed that the overall capital to risk (weighted) assets ratio of the banking sector reached 11.2 per cent in June.

Maintained liquid assets in the banking system increased to Tk 4,21,230 crore in June, while the amount was Tk 3,36,070 crore in March amid liquidity support from the Bangladesh Bank.

Former adviser to caretaker government Dr. Wahid Uddin Mahmud said, "The authorities concerned should work hard to constitute good governance and accountability in the banking sector. At the same time it is essential to keep banks away from political influence."
 
President of Bangladesh Economics Association Professor Dr. Abul Barkat said, "The central bank and other regulatory institutions should carry out firm and uncompromising drive to recover defaulted loans to sustain the country's banking sector."
 
Professor Anu Muhammad of Jahangirnagar University said, "Bangladesh's banking sector has gone into the clutches of financial perpetrators. Some of them are so powerful that the regulators cannot take any action against them."

Dr. Zahid Hussain, former lead economist of World Bank, Dhaka Office said, "The regulatory authorities should not compromise with any bank or financial institution in case of graft and anomalies."