Banking sector faces capital shortfall of Tk 1.55 trillion

The financial health of Bangladesh’s banking sector has worsened sharply, with troubled banks facing a combined capital shortfall exceeding Tk 1.55 trillion in the June quarter.

This alarming figure marks a sharp increase from the Tk 1.1026 trillion (Tk 110,260 crore) deficit recorded in the March quarter.

According to the latest data from the Bangladesh Bank (BB), 24 out of 61 scheduled banks have failed to maintain the mandatory minimum capital, putting immense pressure on the overall financial stability of the country, reports UNB.

Economists and banking sector analysts point to the severe pressure from Non-Performing Loans (NPLs) as the primary reason for the expanding crisis.

As NPLs rise, banks are legally required to set aside a security reserve—known as provisioning from their profits to cover potential losses. When a bank fails to set aside the required provision, it directly erodes its capital base.

The banks now struggling with capital deficits are predominantly those facing massive provision shortfalls due to mounting defaulted loans.

The recent political changeover has exposed previously hidden irregularities, leading to a record surge in non-performing loans and, consequently, a deterioration of bank capital.

The 24 banks in the capital deficit list include four state-owned commercial banks (SOCBs), two specialised banks (SBs), and eighteen private commercial banks (PCBs).

The situation is a critical concern, as a weak capital base not only restricts a bank's ability to absorb unexpected losses but also prevents it from paying dividends to shareholders and hampers its ability to conduct business efficiently with foreign banks under the Basel-III framework.

The central bank's data reveals which institutions are bearing the brunt of the capital erosion.

Specialised and State-Owned Banks

Bangladesh Krishi Bank capital shortfall of Tk 291.61 billion (Tk 29,161 crores), Janata Bank Tk 170.25 billion (Tk 17,025 crore), Agrani Bank Tk 76.98 billion (Tk 7,698 crore), Rupali Bank Tk 41.73 billion (Tk 4,173 crore), Basic Bank Tk 37.83 billion (Tk 3,783 crore), Rajshahi Krishi Unnayan Bank Tk 26.2 billion (Tk 2,620 crore).

Private and Shariah-Based Banks are-Union Bank (Shariah Bank) Tk 213.87 billion (Tk 21,387 crores), Islami Bank Bangladesh Tk 185.04 billion (Tk 18,504 crores), First Security Islami Bank Tk 105.01 billion (Tk 10,501 crore), National Bank Tk 84.59 billion (Tk 8,459 crores), AB Bank 67.75 billion (Tk 6,775 crores), Padma Bank Tk 56.19 billion (Tk 5,619 crore), IFIC Bank Tk 40.51 billion (Tk 4,051 crore).

New entrants to the capital shortfall list in the June quarter include NRBC Bank, Tk 316 crore (deficit) and Al-Arafah Islami Bank, Tk 254 crore (deficit).

Bangladesh Bank mandates that scheduled banks must maintain a minimum capital-to-risk-weighted assets ratio (CRAR) of 12.5 per cent (10 per cent MCR + 2.5 per cent CCB) under the Basel-III framework.

Besides, banks must maintain a minimum Leverage Ratio (LR), which is being gradually increased to 4 per cent by 2026.

The massive Tk 1.55 trillion deficit indicates that a large number of banks are currently unable to meet these core regulatory requirements, signalling severe structural and governance vulnerabilities within the sector.