Higher classified loans in public banks in the recent years remain a concern for the banking sector from financial stability perspective, the central bank said.
It also said asset quality for the country's private commercial banks (PCBs) has slightly deteriorated mainly due to higher non-performing loan (NPL).
The gross NPL ratio in the banking sector increased to 9.3 per cent in the calendar year (CY) 2017 from 9.2 per cent a year before, according to the Financial Stability Report (FSR) 2017, released on Monday.
"Pertinently, inadequate due diligence in credit management is one of the key reasons for persistent high NPL in few banks," the Bangladesh Bank (BB) said in its latest FSR.
The gross NPL ratios of all groups of banks except foreign commercial banks (FCBs) and specialised development banks (SDBs), generally known as specialised banks (SBs) went up between end-December 2016 and end-December 2017.
The FCBs experienced a moderate decline of 2.6 percentage points in their gross NPL ratio during the period under review, according to the FSR.
Though SBs achieved some improvements but their NPL ratio still remained high, it said.
"Along with this, the increasing NPL ratio in state-owned commercial banks (SoCBs) is another reason behind high overall classified loan ratio in the banking sector," the BB explained.
The gross NPL ratio of SoCBs increased to 26.5 per cent in CY 17 from 25.1 per cent a year ago.
Asset quality deteriorated for private commercial banks (PCBs) as their gross NPL ratio increased to 4.9 per cent in CY 17 from 4.6 per cent in the previous calendar year.
"If rescheduled and restructured advances were considered, then the gross stressed advance would have been even higher for each category of banks," the central bank added.
In CY17, all banks except three SoCBs, five PCBs and one SB maintained loan-loss provisions as per regulatory requirement of the central bank.
"Provision shortfall was not a system in wide phenomenon and most banks were adequately provisioned," it noted.
The gross NPLs increased by Tk 121.3 billion between CY 16 and CY 17.
"These new NPLs as well as older ones compelled banks to maintain cumulative provisions of Tk 442.9 billion as of end-December 2017, against which banks actually maintained provisions amounting to Tk 375.3 billion," the FSR said.
Besides, stressed advances increased during the period under review due to the rise in volume of NPL and rescheduling of loans under different categories.
Gross non-performing advances plus restructured and rescheduled standard advances are treated as the stressed advances of the banking sector. The stressed advances ratio rose to 19.0 per cent at end-December 2017 from 17.2 per cent a year ago.
"Though the gross NPL ratio at end-December 2017 was only 10 basis points higher than that of previous year, rescheduled standard and restructured loans to total loans increased by 1.7 percentage points over the year, which demands cautious monitoring from both bankers as well as regulator to improve overall asset quality of the banking sector products," the FSR noted.
In CY17, profitability indicators of the banking sector were mostly positive, according to the BB report.
Return on equity (ROE) of the banking sector increased moderately while return on assets (ROA) remained same compared to the preceding year. Net interest margin (NIM) also increased slightly. The weighted average interest rate spread reduced further at the end of 2017.