Banking sector faces Tk18,388cr capital shortfall

Six state-run banks, three private commercial banks, and one foreign bank have a combined capital shortfall of Tk18,388crore as of March this year as a result of failure to meet the minimum regulatory capital requirements.

The ten banks are Agrani Bank, Rupali Bank, Basic Bank, Janata Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, ICB Islamic Bank, AB Bank and National Bank of Pakistan, according to the latest data of Bangladesh Bank.

Of them, the capital shortfall at six banks soared to Tk818.82crore in the last three months (January to March).  

According to Bangladesh Bank guidelines on risk-based capital adequacy, banks have to maintain a minimum capital adequacy ratio (CAR)—which is a bank’s capital reserve to cover their risk exposure—of 12% by 2019, in line with the BASEL III requirement.

According to the data, Bangladesh Krishi Bank has the highest capital shortfall at Tk8,884crore, followed by Janata Bank at Tk4,888crore, ICB Islami Bank at Tk1,569crore, Agrani Bank at Tk1054crore, Rajshahi Krishi Unnayan Bank at Tk734.97crore, Bangladesh Commerce Bank at Tk434crore, AB Bank at Tk376.74crore, Basic Bank at Tk236crore, Rupali Bank at Tk154crore and National Bank of Pakistan at Tk54crore.

Economists and bankers attribute banks' capital shortfalls to high volume of default loans.

“Capital shortfall is a very bad sign for a bank, which itself is a direct result of the bank’s default loans,” says AB Mirza Azizul Islam, a former finance adviser to a caretaker government.

Mirza adds: “Foreign businesspeople usually monitor the ratio of required capital and default loans of scheduled banks before investing. Such capital shortfalls will discourage them from investing.”

He recommends that the central bank further strengthen its monitoring of the banking sector to prevent financial scams.

The non-performing loans (NPLs) of banks rose by a staggering Tk16,962 crore in three months till March this year, taking the amount of stress loan in the banking sector to Tk1,10,873.54crore. 

As of March, the total bad loans accounted for 11.87% of the total disbursed loans, according to the latest Bangladesh Bank (BB) data

During January to March, Bangladesh Krishi Bank's capital shortfall rose by Tk437crore, AB Bank's by Tk276.74crore, Bangladesh Commerce Bank's by Tk50crore, ICB Islami Bank’s by Tk17crore, Rajshahi Krishi Unnayan Bank's by Tk22crore and National Bank of Pakistan's by Tk14crore. Sonali Bank has come out of their capital shortfall.

The government will inject another Tk1,500crore in FY 2019-20 into state-run banks to meet their capital shortfall, despite their persistent financial irregularities and irresponsible lending practices.

In the last 10 years, the government has supplied a total of Tk17,521 crore in capitalization to ailing state banks with budgetary allocation since fiscal year 2009-10.  

Economists have raised concerns about the practice of recapitalizing state-owned banks with budgetary allocations, saying that the trend will not help improve these banks’ health. Rather, it will encourage loan defaults. 

“The amount of capital shortfall of Bangladesh Krishi Bank did not happen overnight. This has been happening since 1991,” says Mohammad Ismail, chairman of Bangladesh Krishi Bank.

He says 82% of their loans go to farmers, which they lend at a 9% rate of interest.

“Moreover, many of our loans have been rescheduled due to natural disasters. During the Sidr cyclone, the government waived many of our debts. So we have no liability for the capital shortfall of this bank,” Ismail adds.