15 banks face capital deficit of Tk 33,774 cr

Rafiqul Islam Azad: A total of 15 banks in the country had a capital deficit of Tk 33,774 crore at the end of last June, which is approximately 1 percent higher than the previous three months. At the end of March, the deficit was Tk 33,575 crore. A number of banks in deficit have been experiencing significant capital shortfalls year after year. Despite various concessions and intensive supervision, their capital situation is not improving, according to a report from the Bangladesh Bank.
Sources have stated that the capital deficit in banks has increased due to the rise in defaults in the banking sector. By the end of June, defaulted loans had increased abnormally. Consequently, the respective banks have had to make provisions from their profits, further increasing the capital deficit.
According to the report, the Bangladesh Agricultural Bank had the largest capital shortfall among the 15 banks as of June. The deficit for this bank stands at Tk 15,541 crore, while the Rajshahi Agricultural Development Bank had a deficit of Tk 2,386 crore.
Among state-run banks, Agrani Bank had the highest deficit. As of the end of June, the deficit for this bank stood at Tk 3,768 crore, while Basic Bank had a deficit of Tk 2,352 crore, Janata Bank Tk 2,189 crore, Rupali Bank Tk 2,230 crore, and Sonali Bank Tk 11 crore.
Sources indicated that state-owned banks have not been able to turn things around due to various financial scandals. Consequently, these banks have been facing a capital shortage for an extended period. Furthermore, government-specialized banks have fallen into deficit due to lending at low interest rates with high-interest funds, along with irregularities in providing loans.
A researcher described the capital shortage in banks as a worrying situation, suggesting that the scenario of capital shortage is indicative of the banking sector heading in a negative direction. He recommended proceeding according to a policy to reduce the capital deficit, stating, “There should be a policy for state-owned banks, which the government should follow. Private banks should take responsibility for their boards. Banks that cannot preserve capital as per the policy should be merged as weak banks. Otherwise, the deficit will continue to increase year after year.”
Among the private banks, ICB Islamic Bank had the highest deficit of Tk 1,812 crore, while the National Bank had a deficit of Tk 1,380 crore, Bangladesh Commerce Bank Tk 1,314 crore, Padma Bank Tk 497 crore, Citizen Bank Tk 97 crore, and Bengal Bank Tk 88 crore. Additionally, two foreign banks had also fallen into a capital deficit. Of these, Habib Bank had a deficit of Tk 36 crores, and National Bank of Pakistan had a deficit of Tk 42 crores.
A senior official of the central bank stated that Bangladesh Bank had raised the minimum capital requirement from Tk 400 crore to Tk 500 crore. Many banks have yet to meet this condition, and they are also facing a capital shortage. He explained that, according to international principles, banks must preserve their capital. According to Basel-III policy, banks in Bangladesh must maintain 10 percent of risk-based assets or Tk 500 crore, whichever is higher. If a bank fails to maintain this amount, it is considered to have a capital deficiency.
As per the rules, a portion of the money and profits provided to the bank’s entrepreneurs is reserved as capital. A bank cannot pay dividends to its shareholders with deficient capital. Meanwhile, the Capital Adequacy Ratio (CAR) for five banks among the deficit banks at the end of last June has moved into a negative trend. According to the central bank’s report, Basic Bank’s CAR was negative at 2.48 percent, while Bangladesh Commerce Bank had 23.62 percent, ICB Islamic Bank 145.16 percent, Bangladesh Agricultural Bank 47.81 percent, and Rajshahi Agricultural Development Bank 26.95 percent. At the end of June, the capital base ratio (CAR) for the banking sector had fallen to 11.19 percent, compared to 11.23 percent in March.
Sources mentioned that at the end of June, 15 banks had a capital deficit, but the capital surplus in the entire sector was Tk 12,762 crore, down from Tk 14,373 crore at the end of the previous March. In other words, the surplus capital had decreased by Tk 1,611 crore, or 11.20 percent, in three months.
According to data from the Bangladesh Bank, at the end of June, the amount of defaulted loans in the banking sector stood at Tk 156,040 crore, which is 10.11 percent of the total loans. Although at the end of March, defaulted loans were Tk 131,21 crore, or 8.80 percent of the total loans. In the span of three months, defaulted loans increased by Tk 24,419 crore. A total of eight banks failed to keep provisions due to the increase in defaulted loans. At the end of last June, the provision deficit for these banks stood at Tk 26,134 crore, whereas at the end of March, the deficit for eight banks was Tk 20,159 crore. This means that the provision deficit had increased by Tk 5,975 crore in three months.
A highly placed source in the central bank cited three reasons for the banks’ capital shortfall.
The banks that incurred losses faced a capital deficit, as did the banks that experienced an increase in defaulted loans and those that failed to meet the minimum capital requirement, which was raised from Tk 400 crore to Tk 500 crore, as per the source.