Nine banks suffer capital shortfall

Nine banks, which include eight state banks and the trouble-hit Farmers Bank, have failed to meet the minimum regulatory capital needs, in a worrying development for the government.

As per the Basel III framework, banks have to keep at least 10 percent of their capital against their risk-weighted assets.

But Farmers Bank managed 5.31 percent, Bangladesh Commerce Bank 5.27 percent, Rupali 6.70 percent and Janata 9.63 percent as of December 31 last year.

Five of them registered negative capital adequacy ratio (CAR): BASIC (11.05 percent), ICB Islamic (115.38 percent), Sonali (1.75 percent), Bangladesh Krishi Bank (44.53 percent) and Rajshahi Krishi Unnayan (7.53 percent).

During the last quarter of 2017, the nine banks saw their capital shortfall swell by Tk 1,766 crore to Tk 19,466 crore, according to data from the Bangladesh Bank.

Of the sum, the eight state banks accounted for Tk 17,442 crore; they are facing the capital shortfall although the government has provided them with Tk 14,505 crore since 2009.

The government has also planned to inject Tk 2,000 crore into the state lenders this fiscal year.

"This will not help these state banks get into better health," said Ahsan H Mansur, executive director of the Policy Research Institute. The reasons being there is no fundamental change in the management of the state-run banks and they continue to violate the banking norms while disbursing loans, he said.

"Rather, ensuring good governance will strengthen their capital base," he added.

Farmers Bank faced a capital shortfall of Tk 283 crore due to massive financial scams that weakened its capital base. A growing number of non-performing loans forced the bank to keep aside a large amount as provisioning.

On December 31 last year, the banking sector's overall CAR stood at 10.83 percent, up from 10.65 percent three months earlier, thanks to some private banks.

The large capital shortfall is not a desirable phenomenon for the country's banking sector as it would erode the depositors' confidence, said AB Mirza Azizul Islam, a former adviser to a caretaker government.

"The foreign businesspeople usually monitor the ratio of required capital and non-performing loans of the scheduled banks before making their investment decisions. Such capital shortfall will discourage them," he said.

The central bank should strengthen its monitoring of the banking sector to rein in financial scams, he said.

Irregularities fuel the defaulted loan, which, in turn, creates capital shortfall in banks, Islam added.