• Tuesday, December 23, 2014

Freedom in the air

Private banks raise capital base to meet global standards

State banks are in a weak position

Rejaul Karim Byron

Private banks are raising their capital base in every quarter to meet new international standards that will take effect next year.
Their capital base went up around 1.63 percent in the first quarter of this year, while state banks are in a weak position in maintaining capital.
Of all the commercial banks, BASIC Bank plunged into the worst financial condition due to huge irregularities.
Spiralling bad loans have widened the bank's capital shortfall to Tk 1,036 crore at the end of March.
In line with Basel II standards, banks have to maintain 10 percent capital of their risk-weighted assets.
But BASIC Bank's capital adequacy ratio (CAR) was -0.66 percent during January-March, according to central bank statistics.
Basel II was intended to create an international standard for banking regulators to control how much capital banks need to put aside to guard against financial and operational risks.
However, the condition of other state-owned commercial banks was also weak in the quarter as they maintained a CAR of 9.77 percent on average.
But the private banks have been increasing their capital base in every quarter: their CAR rose by 0.13 percentage point in the first quarter and stood at 12.39 percent.
On March 31, the private banks' total capital was Tk 49,092 crore, up from Tk 48,303 crore on December 31, 2013.
Foreign banks always maintain a higher CAR, which was 22 percent at the end of March. As the state banks' capital marked a fall in the first quarter, the overall capital of all banks decreased to Tk 64,575 crore in March from Tk 65,191 crore three  months ago.

When Basel III standards will come into effect, banks will have to maintain CAR at double the present requirement, said Anis A Khan, managing director of Mutual Trust Bank, a private bank.
With the increase in lending, banks' capital requirement will go up and so they will have to raise their capital every year, he added.
If banks have a stronger capital base, they will be able to give their clients bigger amounts of loans, the demand for which will increase with the rise in business activities in the country, Khan said.
Pubali Bank Managing Director Helal Ahmed Chowdhury said the local banks can enjoy various benefits in international business if their capital base is strong.  
Also, the local banks can bargain with their foreign counterparts for a cost-effective rate on charges of various services if their capital base is strong, he said.
As banks will start making preparations for Basel III standards from next year, they will have to strengthen their capital base further, Chowdhury said.

Published: 12:00 am Sunday, July 13, 2014

Last modified: 9:37 pm Sunday, July 13, 2014

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