The capital base of six state-owned banks has improved because of a relief from provisioning against default loans, putting a positive impact on the banking system.
The capital deficit of these banks has reduced by Tk4,778 crore to Tk8,321 crore in March this year in contrast to Tk13,100 crore in December last year, according to the Capital Adequacy of banks under Basel-III statement obtained from central bank sources.
When contacted, Mohammad Shams-Ul Islam, managing director of Agrani Bank, told The Business Standard that state-owned banks do a lot of transactions for free on behalf of the government. In these cases, the government provides some benefits to cover the costs incurred by the banks.
A relief in keeping provision against defaults is one such benefit, he said, explaining that it is not that the provisioning rate is lowered for banks, rather, they get more time to maintain the required provision.
For example, a bank is given an opportunity to keep provisioning the required amount against default loans in two years, which it is supposed to maintain in a year, he added.
Such a facility is offered to banks at the end of December, given their financial conditions, the Agrani Bank managing director said.
The managing director of Agrani Bank thinks that the capital deficit of the state-owned banks has reduced significantly by the end of March owing to the facility.
If the number of default loans increases, provisioning against it goes up too. As of March, default loans increased slightly to 8.02% of the total disbursed loans amounting to Tk94,000 crore, compared to what was in December last year.
The number of default loans is likely to go up more because of the ongoing economic slowdown under the pandemic impact. In that case, banks may have to keep more provisions, bank sources said.
As a result, the capital deficit may increase, they added.
The capital adequacy ratio (CAR), also known as the capital-to-risk weighted-asset ratio (CRAR) of all state-owned banks rose slightly to 11.67% in March this year from 11.64% in December last year.
The CAR is a measurement of a bank's efficiency of financial management, protecting depositors and promoting stability. The higher the CAR of a bank, the stronger its ability to cope with economic disasters.
According to the central bank's statement, the capital surplus of private banks fell by Tk3,885 crore to Tk27,402 crore in March over December.
Anis A Khan, former chairman of the Association of Bankers, Bangladesh, told TBS that private banks have to keep extra provisioning as the number of bad loans has increased. There will be pressure on capital for doing so.
Meanwhile, the CAR of foreign banks rose by Tk203 crore to Tk9,828 crore at the end of March.
But, the capital base of three specialised government banks – Bangladesh Krishi Bank, Karmasangsthan Bank, Rajshahi Krishi Unnayan Bank – has deteriorated. Their capital deficit has increased by Tk465 crore to about Tk12,346 crore.