Huge losses overshadow state banks’ progress in reducing bad loans
The progress of six state-owned banks in reducing delinquent loans last year through the recovery and payment holiday has been overshadowed by a large volume of net losses.
Sonali, Janata, Agrani, Rupali, BASIC Bank and Bangladesh Development Bank Ltd (BDBL) collectively recorded a net loss of Tk 4,949 crore in 2020, compared to a net profit of Tk 89 crore a year ago, data from the Bangladesh Bank showed.
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The net profit situation would have been better if Janata and BASIC Bank had not faced a large volume of net losses.
Janata Bank accumulated a net loss of Tk 5,054 crore in 2020, compared to a net profit of Tk 24.64 crore. BASIC Bank’s net loss widened to Tk 366 crore from Tk 326 crore in 2019.
However, the other four banks managed to make a combined profit of Tk 470 crore last year.
Janata Bank chief executive Md Abdus Salam Azad said the bank had recently moved out of negative territory after the central bank granted it regulatory forbearance.
The bank had a capital deficit of Tk 5,475 crore in December. He now has four years to get rid of the lack of capital.
“The central bank allowed us to set aside capital in phases over the next four years. This allowed us to achieve a net profit of Tk 14.45 crore last year,” Azad said.
The BB extended forbearance to Janata Bank last week.
Regulatory forbearance is a policy that allows banks and financial institutions to continue operating even when their capital is completely depleted.
Central banks give banks extended periods of time during which they must comply with regulatory requirements to raise new capital. This reflects the reluctance of regulators to take disciplinary action against troubled banks for some time.
The capital deficit of public lenders in Bangladesh stood at Tk 13,100 crore last year, up 29% year-on-year.
Of the six banks, only BDBL had a capital surplus of Tk 605 crore last year.
Bank defaulted loans fell 3.91 percent year-on-year to Tk 42,272 crore last year.
The central bank extended a moratorium facility on loans to borrowers throughout last year to protect them from the economic downturn induced by the pandemic.
As a result, banks could not downgrade the credit status of borrowers, if any. The payment holiday has helped banks curb the upward trend in non-performing loans, a BB official said.
In addition, banks have taken steps to collect overdue loans, which has had a positive impact on the volume of overdue assets.
Last year, banks recovered Tk 782 crore from defaulters, which also improved their funding base.
The provisioning deficit stood at Tk 4,923 crore last year, down 37% year-on-year.
A provision deficit is the excess of an obligation or financial liability over the amount of cash available.
Banks must keep 0.50 to 5% provisioning on general category loans, 20% on loans classified as substandard and 50% on loans classified as impaired.
They must set aside 100 percent against loans classified as bad or bad debt.
Sonali, Janata and BDBL did not experience a shortfall last year.
The central bank held a meeting with state-owned banks in March as part of a memorandum of understanding between the regulator and lenders to improve their financial health.
At the time, the BB had instructed banks to collect delinquent loans, which accumulated due to siphoning of funds through financial crimes, and to monitor major defaults to quickly recover closed loans.
The central bank holds the meeting every three months.
Salehuddin Ahmed, former BB governor, said the central bank has long been granting regulatory forbearance to help them continue to operate.
The government has injected a huge amount of capital into the banks, but this has not improved the situation due to a lack of corporate governance, he said.
“Banks are controlled by the finance ministry. This is a major problem. The ministry should relinquish control over them in the interest of the whole financial sector,” Ahmed said.
“If the central bank does not strictly control the banks, the financial health of lenders will not improve.”
There is a lack of professionalism among bankers, and this is another major issue facing lenders, he said.