Dhaka, Bangladesh (BBN) – The capital base of Bangladesh’s banks weakened further in the third quarter (Q3) of this calendar year following rising trend of non-performing loans (NPLs) continues, officials said.
The overall capital-to-risk weighted assets ratio (CRAR) of all the banks operating in Bangladesh came down to 10.31 per cent in Q3 from 10.34 per cent in Q2, according to the central bank latest statistics.
The CRAR was 10.62 per cent in Q1 of 2016.
“An increasing trend in classified loans has pushed down the overall CRAR in the recent months,” a senior official of the Bangladesh Bank (BB), the country’s central bank, explained.
He also said the central bank had already started persuasion with the banks facing capital shortfalls.
The amount of classified loans in the banking sector jumped by nearly 28 per cent to BDT 657.31 billion as on September 30 last from BDT 513.71 billion on December 31, 2015.
On the other hand, the amount of classified loans increased by nearly 4.0 per cent to BDT 657.31 billion during the Q3 from BDT 633.65 billion in the preceding three months.
However, the overall capital shortfalls rose to BDT 6.55 billion as on September 30 from BDT 6.40 billion in ending in June last due to regulatory requirement of increasing the banks’ capital to comply with the Basel-III conditions.
Five out of the six state-owned commercial banks (SoCBs), two of 39 private commercial banks (PCBs) and two specialised banks (SBs) were suffering from capital shortfall in the Q3 of 2016.
“The nine banks faced capital shortfall during the period under review mainly due to their higher classified loans,” another BB official said to explain how NPLs are undermining the bank’s capital bases.
The CRAR of the PCBs averaged 11.83 per cent as on September 30 while it was 24.15 per cent in case of nine foreign banks.
“But the capital position of public banks remains a matter of concern,” another BB official told BBN in Dhaka.
The CRAR of SoCBs stood at 5.62 cent as on September 30 while it was in the negative territory of 32.90 per cent for two SBs, the BB data show.
On the other hand, the total regulatory capital increased by BDT 8.03 billion to BDT 776.87 billion during the July-September quarter from BDT 768.84 billion three months before.
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 parameters, the banks will have to maintain 10.625 per cent CRAR by the end of December 2016 instead of 10 per cent at the end of 2015.
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.
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.