THE capital base of the country’s eleven state-run and private banks faced a shortfall of Tk 27,918 crore in September for higher growth of non-performing loans and corruption, highlighting the fragile health of the lenders. The rising trend in classified loans has put pressure on the banking sector. Besides, the Capital-to-risk weighted asset ratio of the banks also came down to 11.22 per cent at the end of the month from 11.64 per cent in January, says the latest statistics of Bangladesh Bank. Leading economists said there is a lack of good governance inside these banks. As they receive government funding, they are less bothered about accountability.
The banks tried to maintain provision against the default loans. This trend is more prevalent in state-owned banks. Meanwhile, the volume of classified loans grew by nearly Tk 124.16 billion to Tk 1011.50 billion on September 30, 2021 from Tk 887.34 billion on December 31, 2020 despite providing policy support by the central bank. These banks had kept aside more money from their capital for maintaining provisioning requirements against their flop money blocked in non-performing loans. Capital surplus also dropped by over Tk 35.12 billion to Tk 124.18 billion as on September 30 from Tk 159.30 billion from December 31 last calendar year. The eleven banks — five state-owned commercial banks, four private commercial banks and two specialised banks — were put on the list of capital shortfall resulting in capital adequacy of banks under Basel-III. These banks are reportedly facing massive capital shortfalls as they are failing to recover loans due to corruption, irregularities and mismanagement.
According to people concerned, the banks disburse loans from customers’ deposits. When that loan ends up as default, the provision has to be maintained at a specified rate as per the law. There is also an obligation to keep extra capital on bad debts. To reduce capital shortfalls, the banks must bolster their efforts in recovering default loans. The banks must also improve their screening process for issuing new loans, to avoid having new defaulters. The central bank should take immediate measures to address the problem as such a situation sends a negative signal to the global community. We believe the banks cannot improve their capital bases unless non-performing loans are recovered by containing corruption and irregularities.
