Banks’ capital base strengthens

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As of June this season, banks’ capital adequacy ratio (CAR) stood at 11.63%, up from 11.35% 90 days back

Capital base of the country’s banking sector strengthened in the second quarter of this year as several banks have already been enjoying deferral facility on keeping their provisioning against defaulted loans.

As of June this season, banks’ capital adequacy ratio (CAR) stood at 11.63%, up from 11.35% three months back, in line with the latest data of the Bangladesh Bank (BB).

Some state-owned banks received deferral facilities by the (BB) in the event of provisioning against their default loans which resulted in their healthy capitals, says a higher official of the BB.

However, the country’s banking sector failed to maintain CAR according to the deadline set by the BB for implementation of Basel- 111 by December, this past year.

Basel- III can be an international standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations, the BB official has explained. 

He says the BB set the December, 2019 deadline for banks to improve the capital adequacy ratio to 12.50%.

The country’s state-run commercial banks have maintained an extremely low capital adequacy ratio as the automobile of those banks transpired to 6.93% till June, this season, according to the BB data. 

Overall capital adequacy ratio (CAR) in the entire banking sector is  not bad at all however the state- run banks and some new banks capital adequacy ratios aren't good due to their high amount of non-performing loans, says Zahid Hussain, former lead economist of the World Bank Bangladesh office.

Only 10 banks out of 60 in the united states hold 63% of most non-performing loans (NPLs) in Bangladesh, says a recent report of the BB.

State-run specialized Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank have already been maintaining negative capital adequacy ratio. Their average CAR transpired to -36.54% in June, this season.

However, the country’s private commercial banks have already been maintaining a relative standard capital adequacy ratio. The common CAR of those banks stood at 13.31% towards the end of June this season, which was higher than the required standard. 

In addition, foreign commercial banks likewise have been maintaining high standard capital adequacy ratio. The common CAR of those banks stood at 24.35% by the end of June, this season. 

The country’s banking sector has didn't achieve the global standard for CAR due to 10 banks, including six state-run banks. They jointly faced a complete capital shortfall of Tk21,317.22 crore by June. 

The banks are: Agrani Bank, Rupali Bank, Basic Bank, Janata Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, Community Bank Bangladesh, ICB Islamic Bank and Padma Bank. 

Low capital adequacy ratio may be the direct consequence of the banks’ default loans as the banks had to keep their provisioning against default loans, says former Finance Adviser to a Caretaker government AB Mirza Azizul Islam. 

He also has said foreign investors usually monitor the ratio of required capital and default loans of banks before buying any country. Low capital adequacy ratio discourages them from buying any economy.

Banking sector in Bangladesh has maintained the lowest capital adequacy ratio (CAR) than other South Asian countries-India, Pakistan and Sri Lanka- says the Bangladesh Bank’s Financial Stability Report, 2019.

This past year, the banking industry in Bangladesh maintained 11.6% CAR, while neighboring India maintained 15.1% CAR; Pakistan maintained 17.0% CAR and Sri Lanka maintained 16.5% CAR, based on the report.
Source: https://www.dhakatribune.com

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