Banks’ capital base still below regulatory limit

Despite a drastic fall in default loans thanks to the discounted package for loan rescheduling, banks' capital base was still below the regulatory limit in December last year.

The average capital adequacy ratio, which measures risk weighted assets of the banking industry, stood at 11.57 percent in December 2019, below the regulatory requirement of 12.50 percent according to Basel III.

Basel III is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Bangladesh Bank set December 2019 for every bank to bring the capital adequacy ratio to 12.50 percent.

According to the central bank data, 15 banks failed to maintain the capital to risk weighted assets ratio that year. Among them, five were state-owned, eight were private and two were specialised banks.

The state-owned banks were Sonali, Janata, Agrani, Rupali and BASIC.

The private banks included AB Bank, Bangladesh Commerce Bank, First Security Islami Bank, ICB Islami Bank, NRB Global Bank, Mutual Trust Bank, Standard Bank and Padma Bank.

The two specialised banks were Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank.

However, the capital base of the banks significantly improved in 2019 from the 10.5 percent in December 2018, according to the Bangladesh Bank data.

At the end of December last year, 12 banks failed to maintain the minimum capital requirement, and faced a shortfall of over Tk23,616 crore. In December 2018, the shortfall was Tk26,687 crore. 

The capital shortfall was around Tk19,500 crore in nine banks at the end of December 2017.

In 2019, five state-owned banks suffered Tk10,777 crore in capital shortfall while four private banks had a shortfall of Tk2,577 crore, one foreign bank around Tk62 crore and two specialised banks nearly Tk10,200 crore.

Of the state-owned banks, Sonali had the highest amount of capital shortfall with Tk5,832 crore, followed by Janata with about Tk2,500 crore.

Officials at the Bangladesh Bank said that the central bank relaxed the loan rescheduling policy last year to ease risk weighted assets which encouraged the banks to reschedule Tk22,000 crore bad loans.