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Bank & Finance - December 19, 2023

Nine banks facing severe capital deficit

Staff Correspondent: The amount of capital deficit in the banking sector has increased significantly. In the last three months, the capital deficit of 14 banks increased by Tk 3,764 crore to Tk 37,508 crore. Nine out of 14 banks are facing severe capital shortfall, of which 5 have negative Capital Adequacy Ratio (CRAR). This information has emerged in the latest report of Bangladesh Bank.
Those concerned said that due to various financial irregularities and corruption, several banks are running with large capital deficit year after year. Despite various concessions and intensive supervision from the central bank, their capital situation is not improving.
In the light of international principles, banks have to preserve capital. In Bangladesh, banks are currently required to maintain 12.5 percent of their risk-based assets or Tk 500 crore, whichever is higher. If a bank fails to maintain this amount of money, it is considered as capital deficiency. As per 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 deficit capital. Besides, foreign banks check the capital situation of the bank before doing business with any local bank.
In the last July-September quarter, defaulted loans in the banking sector decreased by about Tk 644 crore. However, as of nine months of this year, defaulted loans have increased by Tk 34,741 crores. As a result, the amount of defaulted loans on September 30 was Tk 1 lakh 55 thousand 397 crores, which is 9.93 percent of the total disbursed loans. And the higher the defaulted loans of the bank, the more provision the bank has to keep. And if the need to keep provisions increases, the capital deficit also increases. As a result, the capital deficit of 14 banks has increased to Tk 37,507.51 crore in the quarter under discussion. The banks are public sector Janata Bank, Agrani Bank, Basic Bank and Rupali Bank, specialized sector Bangladesh Agricultural Bank and RajshahiKrishiUnnayanBank. Besides, private sector National Bank, ICB Islamic Bank, Bangladesh Commerce Bank, Padma Bank, Bengal Commercial Bank and Citizens Bank. A total of 15 banks including these banks were in capital deficit in the previous quarter as well. At that time, the capital deficit of the banks was Tk 33,744 crores.

According to the report of Bangladesh Bank, the largest capital deficit of Tk 15,803.66 crore is in the Bangladesh Krishi Bank of the specialized sector. Rajshahi Agricultural Development Bank has a deficit of Tk 2,472.35 crore in this sector. Among the state-owned sector banks, the highest deficit of Agrani Bank is Tk 4,828.61 crore. At this time, the deficit of Basic Bank stood at Tk 3,150.37 crore. Besides, the deficit of Janata Bank is Tk 3,029.54 croreand the deficit of Rupali Bank is Tk 2,121.90 crore. Among the private sector banks, the highest Tk 243.7 crore is National Bank. Besides, ICB Islamic Bank has a capital deficit of Tk 1,823.45 crore, Bangladesh Commerce Bank Tk 1,402.22 crore Padma Bank Tk 607.92 crore, Citizens Bank Tk 95.37 crore and Bengal Bank about Tk 70.70 crore. On the other hand, foreign sector Habib Bank and National Bank of Pakistan have fallen into capital deficit. Last September these two banks had a deficit of Tk 33.40 crore and Tk 43.65 crore respectively.
The data also shows that the capital base of the overall banking sector has also deteriorated in the last three months. During this time the Capital Adequacy Ratio (CAR) stood at 11.08 percent. Which was 11.19 percent last June. Besides, it was 11.23 percent last March. And in December 2022 it was 11.83 percent. On the other hand, the CRAR ratio of several banks fell into the negative trend last September. Among them, Basic Bank is negative 6.71 percent, Bangladesh Commerce Bank is negative 25.49 percent, ICB Islamic Bank is negative 147.79 percent, Bangladesh Krishi Bank is negative 49.30 percent and Rakab is negative 27.74 percent. Besides, several banks’ CARs are below 10 percent at the same time. The list includes Agrani, Janata, Rupali, National and Padma Bank.
It is known that at the end of September, 14 banks have a capital deficit, but the capital surplus in the entire banking sector is Tk 11,483 crores; At the end of June, the surplus was Tk 12,762 crore. That is, the surplus capital has decreased by Tk 1,279 crores in three months.
The former governor of Bangladesh Bank Saleh Uddin Ahmed said, if a bank has a capital deficit, the weakness of its financial base is revealed. As a result, the trust of customers on that bank also decreases. Besides, they have to face difficulties in dealing with banks of other countries. He therefore advised the central bank to take effective steps to strengthen the capital base of banks.

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