Dhaka, Bangladesh (BBN) – The operating profit of the private commercial banks (PCBs) has been showing a declining trend since the beginning of the third quarter of this calendar year following new loan rules set by the Bangladesh Bank (BB).
Such profit of nine PCBs, out of a total of 30, came down to around BDT 2.22 billion in August from BDT 2.44 billion in July 2012, according to the sources in the banking sector.
The figures indicate that the declining trend of operating profit of the PCBs may continue in the near future, despite the loan rules having been revised recently to help ease the difficulties of the businessmen and commercial banks.
The operating profit, however, does not indicate the actual financial position of a bank. The banks have to leave aside funds for provisioning the bad debts and taxes payable to the government.
“The revised loan rules will help the commercial banks to recover their profitability to some extent but the overall declining trend of their operating profit may continue,” a former deputy governor of the BB told BBN in Dhaka. 
Under the revised provisions that became effective from July 1, an ongoing loan operation will be classified in case of non-repayment of any instalment within three months, instead of previously fixed period of six months, while the rescheduling arrangement would not allowed for more than three occasions.
On June 30 this year, the total amount of classified loans with the banking sector stood at BDT 290 billion while a total of BDT 93.14 billion was transferred into special mention accounts (SMAs) as a precautionary measure, according to the central bank statistics.
Earlier on June 14 last, the central bank tightened its conditions relating to loan classification, provisioning and rescheduling which were revised on September 23 considering the stakeholders’ recommendations.
“The central bank has revised the provisions relating to classification, provisioning and rescheduling of loans in line with the global standards,” a senior official of the BB said. 
All 47 commercial banks faced a shortfall of BDT 10.92 billion for maintaining provisioning as on June 30 this year against the required amount of BDT 178.45 billion for the purpose, the BB data showed.
The base for provisioning has been re-fixed at a minimum of 15 percent of the outstanding balance of a loan from the existing level of 20 percent. 
On the other hand, the requirement for general provisioning against all unclassified loans of small and medium enterprises (SMEs) has also been set at 0.25 percent, in place of the existing 1.0 percent. 
Both the revised provisions will come into effect from October 1, according to a central bank circular.
“Cost of funds at a rate higher than that of return on investment is also pushing down the operating profits of the PCBs,” a senior official of a leading PCB told BBN.
The cost of fund of the PCBs rose to 11.87 percent in August this year from 10.74 percent in the corresponding period of the previous calendar year while the return on investment increased to 15.07 percent from 14.84 percent, according to the private banker.
The PCBs also face losses from their investment in the government-approved securities because of lower yield on the treasury bills and bonds than their cost of funds. 
“The average yield on the government securities stood at 11.25 percent which is lower than the cost of funds,” the PCB official said, adding that 12 primary dealer (PD) banks have invested around BDT 216 billion in the government securities.
BBN/SSR/SI-29Sept12-2:30 am (BST)