Banking sector returns to sorry state again

Banking sector indicators have fallen further in June due to rise in gross non-performing loans (NPLs) and shortfall in actual provisioning maintained by the sector.

Bangladesh Bank, in its quarterly review released early this week, expressed concern over the weakening performance by the banks, mainly the state-owned ones having major portion of the NPLs.

After showing a noticeable improvement in December, the banking indicators faced setback again in the last two quarters.

An abnormal increase in NPLs pushed the indicators down, said a senior executive of the central bank, reports the Dhaka Tribune.

Bangladesh BankHe said the default loan ratio, however, improved in December, but it did not sustain as maximum loans were rescheduled, abusing policy.

As a result, the default loans started rising further in the last two quarters, taking advantage of the relaxed policy, he said. Provision requirement increased in the banking sector due to rise of NPL which hit the profitability of the banks, raising concern of the central bank, he added.

According to the review report, the ratio of gross non-performing loans to total outstanding loans increased to 10.8% at the end of June from 10.5% at the end of the previous quarter.

The ratio of net NPL of the sector has also increased from 3.4% at the end of March 2014 to 3.9% at the end of June 2014 – partly due to the increase of gross NPL as well as increased shortfall in actual provision maintained by the sector.

The NPL ratios for state-owned commercial banks, state-run banks and foreign commercial banks increased to 23.2%, 33.1% and 6.2% respectively at the end of June 2014 as compared to 22%, 30.9% and 5.3% at the end of March 2014.

However, the ratio of private commercial banks have improved marginally as it reduced from 5.8% to 5.7% during the period.

The country is yet to get back business-friendly environment following a prolonged political unrest, said Rupali Bank Managing Director Farid Uddin.

As a result, business groups could not perform well in accordance with the banks’ expectations, he added.

During April-June quarter, the capital adequacy ratio (CAR) decreased to 10.7% from 11.3% in previous quarter.

All types of banks witnessed decline in CAR. The ratios for state-owned commercial banks, state-run banks, private commercial banks and foreign commercial banks decreased from 9.8%, negative 12.4%, 12.4% and 22.4% respectively to 8.7%, negative 13.7%, 12.1% and 20.6% during the period.

Among the profitability measures, return on assets in the banking sector declined from 0.9% at the end of December 2013 to 0.6% at the end of June 2014 primarily due to maintaining higher provision for the increased NPL and the net losses incurred by the state-owned commercial banks.

Return on equity (ROE) of the banking industry also decreased to 8.4% at the end of June 2014 from 11.1 % at the end of December 2013.