Costly deposit slashes banks' profits in Jan-Mar

Most of the listed banks, in the first quarter of 2023, failed to manage year-on-year growth in profits owing to lower net interest income driven by a higher deposit rate.

According to bankers, last year, foreign currency exchange gain helped most banks absorb inflationary pressure and post higher profits. But this year, the exchange gain was not as overwhelming.

Also, the Bangladesh Bank has fixed banks' deposit rate in line with inflation, i.e. the deposit rate should not be below the three-month average of inflation. As a result, deposits have become expensive. But on the other hand, the central bank did not remove the ceiling for banks' lending rate.

Out of the 35 listed banks, 25 disclosed their unaudited reports for the January to March quarter of 2023. Ten of them saw declines in profits, two incurred losses, two saw no change in profits, and 11 posted profit growths.

The ones who saw higher profits are Global Islami Bank, Jamuna Bank, Pubali Bank, Bank Asia, Shahjalal Islami Bank, Brac Bank, Uttara Bank, Mutual Trust Bank, Premier Bank, Union Bank, and Social Islami Bank.

On the other hand, Eastern Bank, Mercantile Bank, Dhaka Bank, First Security Islami Bank, Islami Bank, Trust Bank, One Bank, Exim Bank, AB Bank, and Standard Bank saw lower profits.

Prime Bank and City Bank posted the same earnings, while National Bank, which was once a well-performing bank, reported deeper losses, and already loss-making ICB Islamic Bank turned a loss in the first quarter of 2023 as well.

According to the financial statement of National Bank, the bank's quarterly losses deepened because its borrower failed to pay instalments timely and those loans became classified. Therefore, interest on such loans and advances could not be considered as income.

Meanwhile, AB Bank, City Bank, First Security Islami Bank, Global Islami Bank, Islami Bank saw negative net operating cash flow due to lower deposit inflow.

Islami Bank said in its financial statement, the net operating cash flow per share has significantly decreased year-on-year mainly due to a decrease in deposits by Tk2,646 crore.

Mutual Trust Bank's Managing Director Syed Mahbubur Rahman told The Business Standard, "Our bank performed well thanks to cost control of funds and a decent foreign currency collection."

"Besides, our non-performing loans are in control, and we did a good job in recovering bad debts," he added.

"But the banks which failed to control these aspects saw profit declines."

He also said recently, the banking sector has been facing a decrease in net interest income. Because, even though the deposit interest increased, there's a ceiling for the lending rate.

"Besides, exports have declined, and also, we are not able to issue letters of credit (LCs). The banking sector will have to bear this pressure in the coming days as well," he added.

According to the Bangladesh Bank data, bank spread, which is the gap between deposit interest rate and lending rate, came down to 2.96% from 3.1% in March this year compared to March 2022.

Banks' stock performance

The ongoing economic crisis, and increase in defaulted loans have affected the share prices of banks.

The share prices of 25 out of 35 banks on the DSE are stuck at floor price.

However, stock market analysts say banks' shares are the most attractive ones for investment. This is because the price-earnings ratio in the banking sector is below 8% and the dividend yield is pretty good.