The country's financial institutions (FIs) are reeling from asset contraction, higher non-performing loans (NPLs) and decreased profits at the end of the first quarter of this calendar year.
According to the financial stability-assessment report for the Q1 (January-March) released by Bangladesh Bank, total assets of the financial institutions that include banks end-March 2022 amounted to Tk78,574 crore, exhibiting a 12.36% decline compared to the previous quarter.
Similarly, aggregate sources of funds of FIs went down as deposits, capital and borrowings fell in lockstep with one another.
Moreover, FIs' classified loans and leases' ratio increased by 1.30 percentage points from the previous quarter up to 20.63% at the end of March 2022.
Consequently, their profitability plummeted during the review quarter from the levels of preceding quarter.
The findings are based on unaudited and provisional data of banks and financial institutions available up to March 31, 2022, according to the assessment report.
At the same time, FIs' Return on Assets (ROA) and Return on Equity (ROE) stood at -0.93% and -12.03% respectively compared to -0.23% and -2.79% of the preceding three-month period.
It says the banking sector demonstrated a reasonable level of resilience under different stressed scenarios during the quarter.
Citing stress tests on banks, it says credit risks remained "the most dominant risk factor for banks under different levels of shock scenarios."
Among them, increase in NPLs and default of top borrowers would have major adverse impacts on the capital adequacy of the banking sector.
The market risks would have put stress on the aggregate capital-to-risk weighted asset ratio (CRAR), but still these impacts would be less severe than any shock scenarios under credit risks.
During the period under review, individual banks and the banking system as a whole appeared to be resilient against the liquidity shocks.
The financial stability-assessment report mentions that the overall capital position of the banking sector improved during the review quarter as indicated by the increased CRAR.
At the end of March 2022, CRAR of the banking sector stood at 11.41%, 33 basis points higher than that of the previous quarter.
Fifty (50) banks out of 60 had CRAR above the minimum regulatory requirement of 10% or higher.
The Tier-1 capital ratio also increased 47 basis points from the preceding quarter.
Moreover, advance-to-deposit ratio (ADR) stood at 74.17% at the end of March 2022 -- 1.02 and 1.35 percentage points higher than those of end-December 2021 and end-March 2021 respectively.
During the review quarter, a number of initiatives had been taken on part of Bangladesh Bank having implications to stability of the financial system.
To strengthen credit-risk management of banks, the central bank has issued a circular on single borrower and large loan exposure limit which will limit concentrated exposures and thereby improve the stability of the banking sector further.