Upswing in banks Oct-Dec capital base

The capital base of the country’s banking sector increased significantly in the final quarter of the calendar year 2014 despite shortfalls witnessed by six banks, mostly state-run ones.

The total eligible capital, generally known as actual capital of the country’s banking sector, rose by more than 10 per cent to Tk 717.54 billion (Tk 71754 crore) during the bbOctober-December period of the last calendar year from Tk 649.33 billion in the previous quarter, according to the Bangladesh Bank (BB) statistics, reports the Financial Express (FE).

“The capital base of banking sector improved significantly as provisioning shortfall decreased during the period under review following a sharp fall in classified loans,” a senior official of the central bank told the FE on Sunday.

All banks’ provisioning shortfall came down to Tk 7.96 billion in the Q4 of the last calendar year from Tk 28.96 billion in the preceding quarter while the amount of non-performing loans (NPLs) fell by more than 12 per cent to Tk 501.56 billion from Tk 572.91 billion, the BB data showed.

The central banker also said loan recovery and recapitalisation also contributed to the improvement of the overall capital base.

The recovery of classified loans rose to Tk 30.64 billion in the Q4 from Tk 21.20 billion in the previous quarter.

Besides, the government already provided Tk 15 billion to two state-owned commercial banks (SoCBs) in the form of recapitalisation support, the BB official explained.

On the other hand, the overall capital adequacy ratio (CAR) of all banks rose to 11.35 per cent in the Q4 of the last year from 10.57 per cent a quarter ago.

The overall capital surplus of the banking sector stood at Tk 40.69 billion in the Q4 up from the Tk 10.96 billion capital shortfall in the previous quarter.

Two SoCBs, two private commercial banks (PCBs) and two development finance institutions (DFIs) were on the list of those facing the capital shortfall during the Q4, according to the BB official.

“The six banks have faced a shortfall of capital mainly due to the higher volume of their classified loans,” the central banker noted.

The central bank earlier fixed the CAR at minimum 10 per cent considering the country’s overall risk factors in the banking sector.

Under the Basel-II provision, the standard requirement of CAR is minimum 8.00 per cent.

Bangladesh is now implementing the Basel-II accord to consolidate the capital base of banks in line with the international standards.

It has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and market discipline.

Three types of risks – credit risk, market risk and operational risk – have to be considered under the minimum capital requirement.