Dhaka, Bangladesh (BBN) – The capital base of banks has weakened slightly, but remains at a comfortable level, in second quarters (Q2) of this calendar year mainly due to increased classified loans.
The overall capital-to-risk weighted assets ratio (CRAR) of all the banks operating in Bangladesh came down to 10.34 per cent in the April-June period of this year Q2 from 10.62 per cent in Q1 (January-March), according to the central bank latest statistics.
Increased credit growth, particularly in the private sector, coupled with higher NPLs also pulled down the overall CRAR, officials said.
“The capital base of all banks still remains at a satisfactory level despite the slight fall in Q2,” a senior official of Bangladesh Bank (BB), the country’s central bank, explained.
He also said: “We had to deduct BDT 44.45 billion from the capital calculation as provisioning shortfall against non-performing loans (NPLs) of all banks as on June 30.”
The NPLs rose to BDT 633.65 billion in the quarter from BDT 594.11 billion in Q1.
On the other hand, the private sector credit growth rose to 16.78 per cent in June 2016 (year-on-year) as compared to 15. 59 per cent in April this year.

During the period under review, the total regulatory capital increased by BDT 12.72 billion to BDT 768.84 billion from BDT 756.12 billion in Q1.
However, the overall capital shortfall stood at BDT 6.40 billion as on June 30 as compared to BDT 10.83 billion surplus in Q1 ending in March due to regulatory requirement of increasing the banks’ capital to comply with the Basel-III conditions, another BB official explained.
Bangladesh started implementing the Basel-III for calculation of CRAR of all banks from the Q1 of 2015 for consolidating stability in the banking sector.
Under a roadmap to comply with the Basel-III, the banks will have to maintain 10.625 per cent of CRAR by the end of December 2016 instead of 10 per cent at the end of 2015.
The BB was trying to adjust the capital requirement from the beginning of this calendar year so the banks could easily comply with the standard, the central banker added.
Five out of six state-owned commercial banks (SoCBs), two of 39 private commercial banks (PCBs) and two specialised banks (SBs) were facing the capital shortfall in the Q2.
“The nine banks faced capital shortfall mainly due to higher classified loans,” the BB official noted.
The CRAR of the private commercial banks averaged at 11.91 per cent as on June 30 while it was 23.80 per cent in case of nine foreign banks.
“But the capital position of public banks remains a matter of concern,” the central banker said.
The CRAR of SoCBs stood at 5.75 cent as on June 30 while it was in the negative territory of 34.73 per cent for two SBs, the BB data showed.
“The capital base of all banks may face pressure further if the banks fail to earn a good profit in the coming years,” the central banker observed.
In that case, the banks have mainly two options – sponsors have to inject more capital or banks have to retain their profits in the form of retained earnings or issuing stock dividend and also issuing rights shares – for complying with the Basel-III capital requirement.
“Another option is issuing sub-ordinate debt instrument, but with a limited issue size,” the central banker explained.
Besides, the banks had kept aside more money from their capital for maintaining provisioning requirement against classified loans, according to the officials.
The banks will have to maintain 11.25 per cent CRAR by 2017 and 11.875 per cent by 2018. Finally in 2019, it will hit the desired level of 12.50 per cent, according to the roadmap.
The Basel-III is a new global regulatory standard on banks’ capital adequacy and liquidity as agreed by the members of the Basel Committee on Banking Supervision.

BBN/SSR/AD