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Swelling of non-performing loans erodes banks' capital base

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Banks' capital base has been weakened further by higher growth of non-performing loans (NPLs), officials said Sunday, based on their September situation.

The capital-to-risk weighted asset ratio (CRAR) of all the scheduled banks in Bangladesh came down to 11.22 per cent as on September 30, 2021 from 11.64 per cent nine months before, according to the latest statistics of Bangladesh Bank (BB).

The CRAR was 11.57 per cent as on June 30, the closing day of the last financial year.

"Rising trend in classified loans has put pressure on the capital base in the country's banking sector during the period under review," a BB senior official told the FE while explaining the latest situation on CRAR in the banking system.

Meanwhile, the volume of classified loans grew by nearly 14 per cent or Tk 124.16 billion to Tk 1011.50 billion as on September 30, 2021 from Tk 887.34 billion as on December 31, 2020 despite providing policy support by the central bank.

He also said the banks had kept aside more money from their capital for maintaining provisioning requirements against their dud money blocked in NPLs.

The amount of regulatory capital has increased slightly during the period under review while capital surplus has decreased because of rising trend in default loans in the banking sector, according to the BB official.

The total regulatory capital increased by more than 5.0 per cent or Tk 69.74 billion to Tk 1388.08 billion as on September 30 from Tk 1328.34 billion nine months ago. It was Tk 1381.08 billion as on June 30 this calendar year.

However, capital surplus dropped by over 28 per cent or Tk 35.12 billion to Tk 124.18 billion as on September 30 from Tk 159.30 billion as on December 31 last calendar year. It was Tk 160.35 billion as on June 30.

On the other hand, 11 banks out of the total 60 suffered a total capital shortfall worth Tk 279.08 billion as on September 30 this calendar year.

The 11 banks-five state-owned commercial banks (SoCBs), four private commercial banks (PCBs) and two specialised banks (SBs) -were put on the list of capital shortfall, according to a central bank report on capital adequacy of banks under Basel-III.

"Most of these banks are chronological defaulters regarding maintaining their CRARs," another BB official said while replying to a query.

He also said theses banks have failed to generate enough profits to meet their capital requirements mainly due to the poor quality of their assets.

The CRAR of 42 PCBs was found, on average, 13.09 per cent as on September 30 last while the CRAR of nine foreign commercial banks stood at 27.10 per cent.

Mentioning lower CRAR of SoCBs, the central banker also said the capital position of public banks is still a matter of concern.

The CRAR of six SoCBs stood at 6.25 per cent during the period under review while the CRAR of two SBs was in the negative territory at 34.31 per cent, the BB data showed.

"The banks may improve their capital bases through enhancing recovery from bad and written-off loans," Syed Mahbubur Rahman, former chairman of Association of Bankers, Bangladesh (ABB), told the FE in reply to a query.

Mr. Rahman, also managing director (MD) and chief executive officer (CEO) of Mutual Trust Bank Limited, said the banks might enhance their capital base through strengthening their businesses.

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