July 21, 2024 4:29 pm
Home Banking Capital shortfall at 14 banks grows by Tk3,774cr in Jul-Sep

Capital shortfall at 14 banks grows by Tk3,774cr in Jul-Sep

by fstcap

Bankers attribute this rise to growing non-performing loans (NPLs) in the banking sector, leading to an increase in risk-weighted assets.

The capital shortfall of 14 banks increased by Tk3,774 crore in the July-September quarter, according to central bank data.

Bankers attribute this rise to growing non-performing loans (NPLs) in the banking sector, leading to an increase in risk-weighted assets.

Bangladesh Bank data shows that the capital shortfall for 15 banks reached Tk33,732 crore by the end of the April-June quarter. This figure grew to Tk37,506 crore for 14 of those banks by September-end, highlighting a continued challenge for the banking sector.

While the overall NPLs in the banking sector decreased by Tk642 crore by the end of September, the overall capital shortfall saw a drastic increase.

Bankers said the overall decrease in NPLs might not represent the full picture across individual banks. NPLs in banks did not actually decrease in the September quarter but overall NPLs decreased due to the rescheduling of large loans by a state-owned bank.

According to central bank data, six out of nine state-owned and specialised banks — Janata, Agrani, Rupali, BASIC, Bangladesh Krishi, and Rajshahi Krishi Development Bank — faced a Tk31,406 crore shortfall at the end of September. Their shortfall was Tk28,473 crore in the previous June quarter.

 
 

Besides, six private banks — Bangladesh Commerce Bank, ICB Bank, National Bank and Padma Bank, Bengal Commercial Bank and Citizen Bank — faced a capital shortfall of Tk 6,023 crore at the end of September. Their shortfall was Tk5,185 crore at the end of June.

 

Besides, two foreign banks — Habib Bank and National Bank of Pakistan — faced a capital shortfall of Tk77 crore.

 

A senior official of the central bank told TBS that increasing levels of NPLs lead to higher provisioning requirements, potentially impacting banks’ capital adequacy ratios. The ballooning capital shortfall can be attributed to gradual deterioration in financial indicators at banks.

 

He further said the reported capital shortfall figure might not fully reflect the current situation, pointing to the central bank’s provision deferral programme, in which 16 banks received exemptions, totalling approximately Tk50,000 crore, on their capital preservation requirements at different times.

As per international rules, banks are bound to preserve capital. According to the Basel-3 policy, lenders in Bangladesh need 10% of their risk-weighted assets, or Tk400 crore, whichever is higher, in preserved capital. If a bank fails to maintain the prescribed amount, it is considered to be in a capital shortfall.

 

A portion of the investment from bank entrepreneurs and that from profits are reserved as capital. A bank with a capital shortfall cannot pay dividends to its shareholders. In addition, foreign banks take into account the capital situation of local banks before doing business with them.

Central bank data shows the Capital to Risk-Weighted Assets Ratio (CRAR) in the banking sector fell from 11.19% in June to 11.08% in September. It was 11.83% in December 2022.

According to the central bank, the surplus capital of the banking sector decreased by Tk1,279 crore to Tk11,483 crore in ‍September compared to June. 

The surplus capital was Tk21,798 crore at the end of December 2022. Apart from the banks in capital shortfall, only a few banks saw a surge in their surplus capital.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, told TBS, “There are two ways to reduce the capital shortfall. First, banks have to collect their NPLs. If NPLs are reduced, the provision requirement will come down. As a result, the capital shortfall will be reduced. Second, bank entrepreneurs need to inject new capital to reduce the deficit.”

A managing director at a state-owned bank, speaking confidentially, highlighted the role of bank capital as a key indicator of their overall financial health. 

He said increasing capital shortfalls might lead to higher interest rates or letter of credit commissions charged by foreign banks. That is why the central bank extends deferral facility to support banks facing temporary financial difficulties.

The official also said that state-owned banks often provide various government services at relatively low-interest rates. While this fulfils an important public function, it also means foregoing potential income from higher interest rates. This could, in turn, strengthen their capital base.

 

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