Capital shortfall of 10 banks down by over Tk7,500cr in 3 months

Ten banks in the country – that have been suffering from capital shortfall because of maintaining high provisions amid an increase in defaulted loans – have managed to bring down their capital shortfall by over Tk7,500 crore in the span of three months.

The capital shortfall in the 10 banks stood at Tk34,639 crore at the end of December last, which came down to Tk27,086 crore at the end of March this year, according to the Bangladesh Bank. 

Nonetheless, 33 private banks saw their capital strength weaken in March 2022 when compared to December 2021 because of an increase in non-performing loans (NPLs) in the December-March quarter.

As per the international regulatory accord Basel III, banks have to set aside capital a portion of their capital, which is generally 10% of their total risk assets, for expected future losses.

The country's scheduled banks had a capital adequacy ratio of 11.41% at the end of March this year, while the capital adequacy of state-owned banks was only 6.76%, and the specialised banks had a 33.58% capital deficit.

On the other hand, the private banks had a capital adequacy ratio of 13.22% at the end of March this year, down from 13.72% three month ago.

The Bangladesh Bank's data show the capital shortfall of five state-owned banks at the end of December 2021 was Tk17,339 crore, which declined to Tk8,134 crore three months later.

Besides, three private banks had a capital deficit of Tk3,206 crore in December last, which came down to Tk2,923 crore this March. 

Meanwhile, private sector lender National Bank, which had been in deficit in the December quarter, managed to meet the shortfall in the March quarter. On the other hand, another private sector lender Padma Bank made its entry into the list of capital shortfall-hit banks as the bank suffered a Tk105 crore deficit at the end of March. 

On the other hand, the capital deficit of the two specialised banks increased slightly to stand at Tk14,645 crore at the end of March.

Bangladesh Bank Spokesperson and Executive Director Sirajul Islam said, "That the capital shortfall of many banks has come down is good news. Maybe, the banks have made good profits in the quarter. In addition, the banks which were suffering from a capital deficit could not pay dividends and thus could save money, which helped them reduce their capital shortfall."

State-owned Rupali Bank reduced its capital deficit by more than Tk1,000 crore in three months. Speaking on this, Md Obayed Ullah Al Masud, managing director of Rupali Bank, told The Business Standard that the capital build-up of banks is done in various ways, which include operating profit and share capital. "Our capital shortfall has come down as we are making a good profit at present."

Defaulted loans in the country's banking sector increased by Tk10,167 crore in the first three months of this year despite various concessions on loan repayment in the wake of the Covid-19 outbreak.

At the end of December 2021, the amount of defaulted loans was Tk1.03 lakh crore. Three months later, the figure climbed to over Tk1.13 lakh crore, according to the classified loan and provisioning report of the Bangladesh Bank.

AB Mirza Azizul Islam, finance adviser to a former caretaker government, told TBS that defaulting on loans is an old habit of borrowers.

"If defaulters are repeatedly given benefits and the term of the loan is extended and a one-time installment facility is given, it will lead to an increase in the list of defaulters. Again, the amount of defaulted loans would go up further if defaulters were listed following the international method," he said.