EBL clarifies stand on negative cash flow

Eastern Bank Limited (EBL) has clarified its position on negative cash flow, in response to a report published in The Business Standard on 15 August 2021 under the headline "Banks show a high profit, but it's not real".

The EBL on Wednesday told reporters that ideally, the bank funds the assets (loan, advances, and investments) either by deposit or borrowing or shareholders' equity. In the first half of 2021, the asset growth was funded mostly by lower-cost borrowing. 

As "borrowing" is a component of "financing cash flow" (not operating cash flow), operating cash flow tends to be negative if loan growth is funded by borrowing instead of a deposit. 

The bank claims it's a common practice for banks to borrow funds from the money market when needed within their wholesale borrowing limit. 

The EBL also confessed that its net operating cash flow (consolidated) in the first six months of this year was negative by Tk827 crore despite having a positive cash flow of Tk187.3 crore from profit and loss items during this period.

The EBL observed the report published in TBS was based on the Bangladesh bank report and over the findings of banks financial statements.  

Earlier, Eastern Bank, one of the top-performing banks in the country, experienced a 55% profit growth in the first half of the current year, although it has been running with negative cash flow.

In the first six months of this year, 10 out of the listed 30 banks suffered a negative cash flow of Tk4,900 crore.