12 public-private banks in capital shortfall

Twelve banks have fallen into capital shortfall at the end of June this year due to an increase in non-performing loans in the country's banking sector.

The shortfall of the banks – five state-owned, five private and two specialised – was around Tk30,000 crore in the June quarter, according to data from the Bangladesh Bank.

In the previous quarter, 10 banks - five state-owned, three private and two specialised – had a capital shortfall of about Tk27,000 crore.

As per the international regulatory accord Basel III, banks have to set aside a portion of their capital, which is generally 10% of their total risk assets, for expected future losses. If a bank fails to maintain its capital, it is considered a capital shortfall.

As per rules, a portion of the money provided to the bank's entrepreneurs and profits is reserved as capital. A bank cannot pay dividends to its shareholders with deficit capital.

Those concerned said that the loans taken out through various irregularities, corruption and collusion cannot be recovered on time. As a result, most of these loans default after a certain period. Against this, banks have to keep a safety deposit or provision. Banks have to use their capital to meet their needs for additional money which leads to a crisis.

At the end of June, defaulted loans in the banking sector had increased to more than Tk1.25 lakh crore. In the three months through June, new defaulted loans increased by about Tk11,817 crore.

The non-performing loans have increased in terms of percentage also. The default loan rate was 8.53% in March, which increased to 8.96% in June.

At the end of June, nine banks – four state-owned and five private – failed to keep provisioning according to the loan standards. The provision shortfall of these banks stands at Tk18,932 crore.