Deterioration of asset, rescheduling of NPL blamed
Abu Sazzad: Capital shortfall is a common phenomenon but its rising trend is a concern for the financial stability of the banking sector and economy as well in Bangladesh. It is easily predictable that such shortfall may increase in the upcoming days for coronavirus outbreak, said experts.
Drastically increasing loans and advances, deterioration of asset quality, rescheduling of NPL are the major reasons for the capital shortfall. Apart from this, the relax policy on loan recovery policy for the COVID-19 pandemic is also acting for increasing such shortfall.
At the end of March, the capital shortfall of 13 banks stood at Tk 25,904 crore. Bangladesh Krishi Bank is holding the highest capital shortfall worth Tk 9,762 crore, followed by Sonali Bank for Tk 5,790 crore, Janata for Tk 2,563 crore, Agrani for Tk 2,475 crore, BASIC for Tk 1,054 crore and Rajshahi Krishi Unnayan Bank or RAKUB for Tk 856 crore and Rupali for Tk 444 crore.
Out of the private commercial banks, the capital shortfall of ICB stood at Tk 1,607 crore, followed by Bangladesh Commerce Bank for Tk 935 crore, Padma Bank for Tk 325 crore, Police Community Bank for Tk 8 crore, NRB Global Bank for Tk 8 crore and National Bank of Pakistan for Tk 77 crore, according to the latest data of Bangladesh Bank.
In this backdrop, the banking sector had a combined capital shortfall of Tk 17,658.83 crore as of September last year while it was Tk 23,612.43 crore at the end of December.
Even these banks are failing to maintain ADR (advance deposit ratio) with the central bank to ensure the security of the depositors’ money. The financial stability of such banks is gradually deteriorating and the fresh lending almost halted, said the banking sources.
Economists expressed their deep concern for breaking the financial discipline of the banking sector. Corruption, financial irregularities, mismanagement and the NPLs are the major reasons behind the squeezing the financial health of these FIs, they observed.
Actually, country’s banking sector is facing severe problem since the corona virus pandemic. Now, the banking sector has lost its financial stability to facilitate the private sector mainly for financial irregularities which is imposing a serious threat to resolve the ongoing and post COVID-19 challenges.
Meanwhile, the banking sector profit declined drastically in the first six months (January to June) of the calendar year due to poor banking business concentrating the novel coronavirus. Besides, many banks are facing acute liquidity crisis to run their banking business accordingly for higher NPL.
A senior Bangladesh Bank official said, the capital base of the country’s banks is deteriorating. The minimum capital to risk assets ratio (CRAR) is critical to ensuring a bank has enough cushion to absorb a reasonable amount of losses before it becomes insolvent and consequently loses depositors’ funds.
The Bangladesh Bank has been pressing the banks to maintain the CRAR at 12.5 per cent as part of the implementation of Basel III in the country’s banking sector, he added.
Riding on the rescheduling with 2 per cent down payment, the defaulted loans in the country’s banking sector dropped to Tk 94,331 crore at the end of December last but the banks’ risk exposure increased.
Dr AB Mirza Azizul Islam, former adviser to a caretaker government said that the figure of NPL dropped mainly due to the same volume of loan rescheduling during the October-December period. It means that the volume of defaulted loans has reduced only on paper and that is why the capital shortfall has increased in banks, he explained.
In reality, the situation of the country’s banking sector has deteriorated and it will continue weakening further. Bankers and economists identified the government’s faulty policies like the introduction of loan rescheduling with easy terms and its sympathetic approach towards large defaulters as the major reasons for soaring NPL.