Capital shortfall of 11 banks rises to Tk33,575cr

Infographic: TBS

The capital shortfall of 11 banks, mostly state-run ones, increased by Tk2,873 crore to Tk33,575 crore at the end of March this year amid rising bad loans, according to the latest Bangladesh Bank report.

It was Tk30,702 crore at the end of December last year.

The state-run lenders in capital shortfall are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BASIC Bank, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank. Their shortfalls amount to Tk28,117 crore.

Of them, Bangladesh Krishi Bank has the highest shortfall of Tk14,094 crore. Although Agrani Bank is in capital shortage, it improved slightly in the March quarter compared to the previous quarter.

Among the private banks, Bengal Commercial Bank, ICB Islamic Bank, National Bank and Padma Bank have been in the capital shortfall.

"The government should inject capital into the state-owned banks to reduce their shortfall. If not, their crisis will continue. At the same time, the government should also ensure that the banks do not have default loans again," said Ahsan H Mansur, executive director of the Policy Research Institute.

For establishing good governance in state-owned banks, attention should be paid to management, he told The Business Standard.

Sector insiders said defaulted loans in the banking sector are increasing every month, causing provision and capital shortfalls. 

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 Tk 400 crore, whichever is higher, in preserved capital. If a bank fails to maintain the prescribed amount, it is considered to be in 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.

The Bangladesh Bank data also shows that the Capital Adequacy Ratio or CAR in the banking sector fell from 11.83% in December to 11.23% in March. The CAR is an indicator of how well a bank can meet its obligations. The ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world.

According to the central bank, the surplus capital of the banking sector decreased by Tk7,425 crore to Tk14,373 crore in March compared to that of December. Apart from the banks in capital shortfall, only 13 of the remaining 50 banks saw a surge in their surplus capital.

A senior Bangladesh Bank official, wishing to remain unnamed, told TBS that banks usually reschedule many defaulted loans for two to three months in December just to show low defaulted loans.

"As the reschedules expire in January or February, non-performing loans as well as capital shortfall increase in the March quarter. Banks which do not have shortfalls also reduce the defaulted loans in the same process. Therefore, the surplus capital of the banking sector also decreases," he explained.

Central bank data says non-performing loans fell by around Tk13,750 crore in the December quarter compared to that of September last year, thanks to loan rescheduling. However, non-performing loans increased by Tk11,000 crore to Tk1,31,621 crore in the March quarter as reschedules expired.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, told TBS, "Many banks' profits have decreased due to the increase in defaulted loans. Because a part of the profits goes to provision for defaulted loans."