Six state-run banks, three private commercial banks, and a foreign bank, had a combined capital shortfall of Tk 266.87 billion as of December 2018, following failure to meet the minimum regulatory capital requirements.
They are: Agrani Bank, Basic Bank, Janata Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, ICB Islamic Bank, Sonali Bank, AB Bank and National Bank of Pakistan.
Of them, the capital shortfall at five banks soared to Tk 72.97 billion in the last fiscal year (2017-2018).
According to Bangladesh Bank guidelines on risk-based capital adequacy, banks have to maintain a minimum capital adequacy ratio (CAR)—which is a bank’s capital reserve to cover their risk exposure—of 12% by 2019, in line with the BASEL III requirement.
According to latest data from the central bank, Bangladesh Krishi Bank had the highest capital shortfall which stood at Tk 84.47 billion, followed by Janata Bank at Tk 58.55 billion, Sonali Bank at Tk 53.20 billion, Basic Bank at Tk 33.94 billion, ICB Islami Bank at Tk 15.52 billion, Agrani Bank at TK 8.83 billion, Rajshahi Krishi Unnayan Bank at Tk 7.12 billion, Bangladesh Commerce Bank at Tk 3.84 billion, AB Bank at Tk 1.00 billion, and National Bank of Pakistan at Tk 400 million.
The banks are facing capital shortfalls due to high default loans in the banking sector, economist and bankers said.
“Capital shortfall is a very bad sign for a bank, which itself is a direct result of the bank’s default loans,” said AB Mirza Azizul Islam, a former finance adviser to a caretaker government.
Mirza added: “Foreign businessmen usually monitor the ratio of required capital and default loans of scheduled banks before investing. Such capital shortfalls will discourage them from investing.”
He recommended that the central bank further strengthen its monitoring of the banking sector to prevent financial scams.
In the span of a year up to December, 2018, Janata Bank’s capital shortfall rose by Tk 56.94 billion to Tk 58.55 billion, Bangladesh Krishi Bank capital shortfall rose by Tk 6.70 billion to Tk 84.47 billion, Basic Bank rose by Tk 7.38 to Tk 33.94 billion, Bangladesh Commerce Bank rose by Tk 1.38 billion to Tk 3.84 billion, and ICB Islami Bank’s capital shortfall rose by Tk 570 million to Tk 15.52 billion.
Agrani, AB Bank, and National Bank of Pakistan, also faced capital shortfalls afresh.
Meanwhile, Rupali Bank and Farmers Bank have come out of their capital shortfall.
“The amount of capital shortfall of Bangladesh Krishi Bank did not happen overnight. This has been happening since 1991,” said Mohammad Ismail, chairman of Bangladesh Krishi Bank.
He said 82% of their loans go to farmers, which they lend at a 9% rate of interest.
“Moreover, many of our loans have been rescheduled due to natural disasters. During the Sidr cyclone, the government waived many of our debts. So we have no liability for the capital shortfall of this bank,” Ismail added.
The government has been making budget allocations each fiscal year to meet the capital shortfall at state-owned banks.
In the current fiscal year (2018-2019), the government has doled out Tk 15 billion to four state owned banks (Janata, Basic, Bangladesh Krishi and Rajshahi Krishi Unnayan Bank) from the budget.
Since 2009 the government has so far injected Tk 160.05 billion into state-owned banks, but these have yet to show any signs of strengthening their capital base, said a senior Bangladesh Bank official, preferring to remain anonymous.