A news report published on Monday said the banking sector in Bangladesh is facing a serious crisis as banks are identified with capital shortfall. The report said the capital base of our banks is much weaker than other countries in South Asia, which indicates their fragile financial health and poor image in the outside world. According to economists and bankers, some ten to twelve banks out of 59 now perform well, but other banks are facing diverse problems.
By any standard, a bank’s capital shortfall is considered a serious concern because this problem weakens the bank’s resilience. Depositors’ trust and confidence get eroded, and many partners and stakeholders feel insecure in continuing their business relationship with such banks. Our banks maintained a capital adequacy ratio (CAR) of 11.60 per cent last year, less than 18.6 per cent in Pakistan, 16.5 per cent in Sri Lanka, and 15.8 per cent in India. This means the financial strength of our banks is less than those in other nations in the region.
According to economists, banks with vital capital shortage cannot operate with efficiency, and as a result, operating cost rises and profitability declines. If this problem is not resolved and capital shortfall persists, the bank’s existence will be at stake and this problem may lead to bankruptcy. That’s why capital adequacy ratio is maintained around the world to protect depositors’ interest and promote the stability and efficiency of financial systems. It also reflects the ratio of defaulted loans, the capability to keep provisioning against regular and classified loans, and the actual corporate governance situation. Economists have expressed their frustration that the central bank has allowed some new banks though their capital base was still small. They also termed corruption as another reason for the lower capital base of our banks.
Since the banking sector is going through a difficult time, the local banks need to fortify their capital base to minimise the downside risks.
