Six state-run banks, three private commercial banks, and one foreign bank, had a combined capital shortfall of Tk26,687crore as of December 2018, following failure to meet the minimum regulatory capital requirements.
The ten banks are: Agrani Bank, Basic Bank, Janata Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, ICB Islamic Bank, Sonali Bank, AB Bank and National Bank of Pakistan.
Of them, the capital shortfall at five banks soared to Tk7,297crore in the last fiscal year (2017-2018).
According to Bangladesh Bank guidelines on risk-based capital adequacy, banks have to maintain a minimum capital adequacy ratio (CAR)—which is a bank’s capital reserve to cover their risk exposure—of 12% by 2019, in line with the BASEL III requirement.
According to latest data from the central bank, Bangladesh Krishi Bank had the highest capital shortfall which stood at Tk8,447crore, followed by Janata Bank at Tk5,855crore, Sonali Bank at Tk5,320 crore, Basic Bank at Tk3394crore, ICB Islami Bank at Tk1,552 crore, Agrani Bank at TK883crore, Rajshahi Krishi Unnayan Bank at Tk712crore, Bangladesh Commerce Bank at Tk384 crore, AB Bank at Tk100 crore, and National Bank of Pakistan at Tk40 crore.
The banks are facing capital shortfalls due to high default loans in the banking sector, economist and bankers said.
“Capital shortfall is a very bad sign for a bank, which itself is a direct result of the bank’s default loans,” said AB Mirza Azizul Islam, a former finance adviser to a caretaker government.
Mirza added: “Foreign businessmen usually monitor the ratio of required capital and default loans of scheduled banks before investing. Such capital shortfalls will discourage them from investing.”
He recommended that the central bank further strengthen its monitoring of the banking sector to prevent financial scams.
In the span of a year up to December, 2018, Janata Bank’s capital shortfall rose by Tk5,694 crore to Tk5,855crore, Bangladesh Krishi Bank capital shortfall rose by Tk670 crore to Tk8,447 crore, Basic Bank rose by Tk738 to Tk3,394 crore, Bangladesh Commerce Bank rose by Tk138 crore to Tk384 crore, and ICB Islami Bank’s capital shortfall rose by Tk57 crore to Tk1,552 crore.
Agrani, AB Bank, and National Bank of Pakistan, also faced capital shortfalls afresh.
Meanwhile, Rupali Bank and Farmers Bank have come out of their capital shortfall.
“The amount of capital shortfall of Bangladesh Krishi Bank did not happen overnight. This has been happening since 1991,” said Mohammad Ismail, chairman of Bangladesh Krishi Bank.
He said 82% of their loans go to farmers, which they lend at a 9% rate of interest.
“Moreover, many of our loans have been rescheduled due to natural disasters. During the Sidr cyclone, the government waived many of our debts. So we have no liability for the capital shortfall of this bank,” Ismail added.
The government has been making budget allocations each fiscal year to meet the capital shortfall at state-owned banks.
In the current fiscal year (2018-2019), the government has doled out Tk1,500 crore to four state owned banks (Janata, Basic, Bangladesh Krishi and Rajshahi Krishi Unnayan Bank) from the budget.
Since 2009 the government has so far injected Tk16,005 crore into state-owned banks, but these have yet to show any signs of strengthening their capital base, said a senior Bangladesh Bank official, preferring to remain anonymous.
