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Dhaka Tribune

Increasing number of banks have a capital shortfall

As per rules, a bank cannot pay dividends to its shareholders with a capital shortfall

Update : 12 Sep 2022, 08:15 PM

The number of banks facing a capital shortfall has risen in the second quarter (April-July) of 2021 largely due to loan defaults. 

According to the latest data from the central bank, the total capital shortfall of 12 banks stood at Tk29,531.35 crore.

In the previous quarter, the capital shortfall was Tk27,051 crore and the number of banks was 10, among them five were state-owned, three private and two were specialized banks. 

Even at the December-end quarter of 2021, the capital shortfall in 10 banks was Tk34,559.91 crore.

AB Mirza Azizul Islam, economist and former financial adviser to the caretaker government told Dhaka Tribune that as the defaulted loan increase, a certain amount of provisions should be kept against it. 

Banks face capital shortfall while keeping this extra money. 

“So, to reduce defaulted loans, debt collection should be increased and at the same time, extra facilities should be stopped for defaulted customers,” he suggested.

Explaining more about the overall situation he said: “In fact, getting facilities year after year, defaulters now think that if they don't have to repay the loan, they may get bigger facilities in the future. So,  we have to stop these types of facilities for the defaulters. Loan collection should be increased and legal action should be taken against those who do not pay the loan regularly. Otherwise, the banking sector will be in more trouble.”

According to the latest data from the Bangladesh Bank, the capital shortfall of seven state-owned banks, including two of the specialized banks, was Tk26,095 crore at the end of June or the second quarter. 

As per the international regulatory accord Risk Based Capital Adequacy (BASEL-III), banks have to set aside a portion of their capital, which is generally 10% of their total risk assets, for expected future losses. 

If a bank fails to maintain its capital, it is considered a capital shortfall and a bank cannot pay dividends to its shareholders with deficit capital.

At the end of June, defaulted loans in the banking sector had increased to more than Tk1.25 lakh crore.

In the three months through June, new defaulted loans increased by about Tk11,817 crore.

The non-performing loans have increased in terms of percentage also.

The default loan rate was 8.53% in March, which increased to 8.96% in June.

At the end of June, nine banks -- four state-owned and five private, failed to keep provisioning according to the loan standards.

Banks in the capital shortfall in Q2

Two more banks have been added to the capital shortfall list in three months.

Bangladesh Krishi Bank has the highest capital shortfall of Tk13,171.13 crore in the second quarter of the ongoing calendar year. 

The second highest was in Agrani bank, where the deficit was Tk2,507.70 crore. 

Sonali Bank has a capital shortfall of Tk2,278.38 crore, Rupali Bank Tk2,261 crore, Basic Bank Tk2,124.41 crore, Janata Bank Tk1,603 crore and Rajshahi Krishi Unnayan Bank with Tk 2,149 crore.

The capital shortfall of five private sector banks was Tk3,437 crore. 

Among them, the deficit of the ICB Islamic Bank was Tk1,659.47 crore, Bangladesh Commerce Bank was Tk1,212 crore, National Bank was Tk300 crore, Padma Bank was Tk263 crore and Bengal Commercial Bank was Tk2.3 crore.

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