Banks shine on capital market returns
This trend began in fiscal 2019-20 when the private sector credit grew just 8.61%
Pubali Bank has earned Tk1,075 crore from its investments in treasury bonds and the share market in the first nine months of this year when the private sector lender gained just Tk156 crore from lending which is its core business.
Not only Pubali Bank, National, and Southeast banks have also earned more from their capital market investments than the net interest income.
Most other banks have also received a significant return from their investments in stocks and bonds although the earnings did not exceed their core business income.
This trend began in fiscal 2019-20 when the private sector credit grew just 8.61%, which was far behind the target of 14.8%.
In the previous fiscal year, the growth was 11.32%, down from 16.94% in fiscal 2017-18.
However, most banks' interest income decreased as the lending rate declined, but they witnessed growth in net interest income as the deposit rate dropped significantly.
Riding on the capital market returns, low-cost deposits, and the loan moratorium facility, 16 banks have achieved growth in their net profits in the first three quarters of this year.
So far 19 banks have disclosed their detailed un-audited financial statements.
"In the last couple of years, we have observed that the private sector is not interested in bank loans despite the interest rate going lower," Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard.
"The situation was getting worse when the pandemic hits the business in the country, prompting banks to invest more in government treasury bonds and the share market to keep their profitability."
Syed Mahbubur Rahman, also a former president of the Association of Bankers, Bangladesh, does not see it as a good practice for banks because lending money is their core business.
Now banks can earn from interest income but in coming days it will decrease as the central bank has adjusted the deposit rate with the inflation rate, which will increase the cost of funds, he added.
He said after the withdrawal of the moratorium facility in December, banks will fall under pressure.
The private sector credit growth is still lower than the target. At the end of September this year, the growth was just 8.77% against the target of 14.8%.
Owing to the interest rate cap and business slowdown, banks disburse loans at between 6% and 9% interest and they receive deposits at below 1% to 7% interest, as per the central bank data.
Whereas banks receive 6.8%, 7.19%, and 7.44% interest from their investments in treasury bonds with a tenure of 10 years, 15 years, and 20 years, respectively.
In the first nine months of this year, DSEX, the key index of the Dhaka Stock Exchange, jumped 30% to its historical high of 7,329 points.
The central bank took action against two banks and sent warning notices to some other banks for breaking the rules while investing in the share market.
Rev: Moin