Dhaka, Bangladesh (BBN)– Higher capital requirement to meet Basel-III requirement and the deadweight of classified loans have resulted in capital shortfall in eight banks and substantial erosion in the surplus capital of 48 others in Bangladesh.
Three state-owned commercial banks (SoCBs) out of six, three private commercial banks (PCBs) out of 39 and two specialised banks (SBs) were on the list of those facing the capital shortfall during the first quarter (Q1) of the current calendar year, according to the central bank’s latest statistics.
Currently, 56 commercial banks are running their business across the country.
Talking to BBN, a senior official of the Bangladesh Bank (BB), the country’s central bank, said the eight banks have faced a shortfall of capital mainly due to the higher volume of their classified loans.
Higher NPLs have led to a rise in provisioning requirements, which ultimately prompted their capital shortfall, the central banker explained.
He also said all private commercial banks’ capital to risk weighted assets ratio (CRAR) was found on average 11.96 per cent as on March 31 last. “But it was the capital position of public banks that was a matter of grave concern.”
The CARA of six SoCBs stood at 6.50 per cent as on March 31 this year while the CARA of two SBs were in negative territory at 32.87 per cent, the BB data showed.
On the other hand, the aggregate capital surplus of all banks came down to BDT 10.83 billion as on March 31 from BDT 23.96 billion three months before.

Under the roadmap for implementation of the Basel-III framework, the banks will have to maintain 10.625 per cent of CRAR under the Basel-III standard in 2016 instead of 10 per cent for 2015.
Such higher requirements have already come into effect from the Q1 of this calendar year aiming to strengthen stability in the banking sector, they explained.
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 capital surplus of banks may fall further if the banks fail to earn a good profit in the coming years,” another BB official said.
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 BB officials.
The declining trend in surplus capital also pushed down the CRAR of all banks to 10.62 per cent in the Q1 of this year. It was 10.84 per cent of the previous quarter of the last year under Basel-III calculations.
The rising trend in non-performing loans (NPLs) is hindering the overall growth in the country’s banking sector, not only capital surplus, they added.

The amount of NPLs swelled by more than 15 per cent to BDT 594.11 billion during the Q1 of this year from BDT 513.71 billion in the preceding quarter.
Basel-III is a new global regulatory standard on bank capital adequacy and liquidity, agreed upon by the members of the Basel Committee on Banking Supervision.
The third of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.
The Basel-III is set to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage.