A Financial Stability Report for 2014 has been released by the Bangladesh Bank, the nation’s central bank, and a key outcome of it is that high non-performing loans (NPLs) eroded the earnings of banks last year.
The report says that return on asset and return on equity, the two major indicators used to measure a bank’s profitability, decreased by 20 and 260 basis points to 0.7 and 8.1 percent respectively from a year ago.
The rise in NPLs last year forced banks to set aside a major portion of their profits for provisioning, the Daily Star quoted S K Sur Chowdhury, the deputy governor of the Bangladesh Bank, as saying at the unveiling of the Financial Stability Report 2014.
Chowdhury blamed the high NPL of state banks for the overall profit decline in the banking industry.
Non-interest income has increased the banking sector’s operating profits 14.3 percent year-on-year to Tk 21,270 crore in 2014, according to the report.
The net profit of the industry has declined 17.3 percent to Tk 6,000 crore last year, mainly due to the extensive growth in bad debt provisions.
The amount of provisions almost doubled to Tk 8,430 crore last year from Tk 4,610 crore a year ago, according to data from the Bangladesh Bank.
Governor Atiur Rahman, while unveiling the report in the presence of chief executives of banks and non-banks, warned the lenders not to give loans to borrowers who do not pay back.
He said that there was a need to be careful about bad debts.
As of December 2014, the banking sector’s overall classified loans rose to 9.7 percent against 8.9 percent in December 2013.
The Financial Stability Report 2014 is the fifth of its kind in Bangladesh, and looks into the key risks to the sector.