The central bank has instructed four state-owned banks to come out of their capital shortfalls urgently, resulting from a significant increase in non-performing loans and provision shortfalls.
Bangladesh Bank Governor Abdur Rouf Talukder issued the directive yesterday at a meeting following a review of the Memorandum of Understanding (MoU) signed by the banks with the central bank in June.
Managing directors and high officials of Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank were present at the meeting.
Memorandums of understanding (MOUs) were signed with the central bank to outline the comprehensive plans for state-owned banks. The central bank conducts biannual reviews of the overall progress of the banks in the June and December quarters.
Central bank officials, who were present at the meeting, told TBS that extensive discussions took place regarding various issues outlined in the MOUs, including concerns about high levels of defaulted loans, capital shortfalls, and provision shortfalls.
As of June, the majority of targets specified in the MOUs remain unmet. Consequently, the central bank has mandated full compliance by December of the current year, they said.
The officials also said banks with a Capital to Risk (Weighted) Assets Ratio (CRAR) and Capital Conservation Buffer (CCB) against risk-based assets below 12.5% have been directed to promptly enhance their ratios to meet the 12.5% threshold.
As per international rules, banks are bound to preserve capital. According to the "Basel-3" policy, lenders in Bangladesh need 10% of their risk-weighted assets, or Tk400 crore, whichever is higher, in preserved capital. If a bank fails to maintain the prescribed amount, it is considered to be in a capital shortfall.
As of June this year, the state-owned banks reported the following CRAR – Agrani Bank at 5.12%, Janata Bank at 7.75%, Rupali Bank at 5.12%, and Sonali Bank at 9.99%.
Among these, Agrani Bank exhibited the largest capital deficit, totaling Tk3,768 crore, as of the end of June, followed by Rupali Bank with Tk2,230 crore, Janata Bank with Tk2,189 crore, and Sonali Bank with Tk10 crore, according to the Bangladesh Bank.
Central bank officials indicated that the declining loan collection of the four state-owned banks is attributed to lending without proper assessment of repayment capacity, leading to an increase in defaulted loans.
Meanwhile, as of the end of June, the default rate of these four state-owned banks experienced an uptick. The governor issued directives to bring down the default rate of loans within these banks to an acceptable level.
As per Bangladesh Bank data, as of the end of June, Janata Bank had the highest amount of defaulted loans among the four banks, totaling Tk28,542 crore, equivalent to 32.64%. Following closely were Agrani Bank with Tk16,495 crore, constituting 23.51%, Rupali Bank with Tk8,039 crore, accounting for 19.6%, and Sonali Bank with Tk12,382 crore, representing 14.93%.
A former managing director of a state-owned bank, speaking on condition of anonymity, told TBS, "The challenges faced by state-owned banks are not new; their financial situation has been precarious for years. We have not witnessed any proactive efforts from the central bank to improve the situation."
He further said, "Previous initiatives, including the signing of the MoU, have proven ineffective. Conventional measures alone won't suffice to bolster the financial health of these banks; decisive actions need to be taken to bring about improvement."