Banks' profits increased but didn't benefit shareholders

Most banks posted higher profits for 2022 compared to the previous year, mainly due to good revenue from dollar trades amid a volatile currency market, despite the challenges of non-performing loans, high inflation, and a liquidity crunch.

However, shareholders did not benefit from the increased profits, as almost all banks have kept their dividends unchanged in 2022, and some have even decreased them compared to the year before.

Analysts have attributed it to the ceiling imposed by the Bangladesh Bank and the unstable financial conditions of banks.

There are 35 banks listed in the capital market, and 14 of them declared dividends for their shareholders. They also published their annual earnings through the Dhaka Stock Exchange (DSE).

Out of them, 11 banks' profits increased, while two reported a decrease. ICB Islamic Bank has been incurring losses for a long time.

However, none of them have proposed to pay more dividends than the previous year; rather, City Bank, Dutch-Bangla Bank, and Trust Bank have proposed a lower dividend.

Defending their position, Brac Bank's Chairman Ahsan H Mansur told The Business Standard, "Simply increasing dividends whenever profits are high is not the right approach."

"Investors also should consider whether bank's profitability and deposits have increased, as well as how much progress the bank has made in reducing non-performing loans," he added.

According to the central bank, a bank can declare a maximum dividend of 35%, including 17.5% in cash and 17.5% in stock.

Ahsan H Mansur said banks suffered from high non-performing loans and a liquidity crunch last year. This crisis has been created mainly due to the decrease in deposits in the banking sector.

Meanwhile, several banks have managed to make good profits thanks to the appreciation of the dollar, he added.

According to the Bangladesh Bank, the total amount of default loans in the banking sector was Tk1.20 lakh crore in December last year, which was 8.16% of the total disbursed loans.

Dollar blessed banks

At a time when the entire country is grappling with rising dollar prices that put foreign exchange reserves under stress, some banks have made high profits from the volatile forex market, propelling the greenback to become dearer and making inflation worse.

Banks' generated income of up to 400% from foreign exchange dealings, while their earnings from other sources, such as the share market and interest, declined.

The dollar price surged faster after the Russia-Ukraine conflict started in February last year. The inter-bank exchange rate, which was Tk85 at the beginning of that year, shot up to Tk112.

The Federation of Bangladesh Chambers of Commerce and Industry President Jashim Uddin said in an event last year, banks were making a profit of Tk10 for every dollar they were selling.

Banks have been given a licence to do business, not to make such a high profit per dollar, he said.

"We cannot accept that banks will sell a dollar for Tk105-Tk110 after buying it from the central bank for Tk94," said the president of the country's apex trade body.

Banks' stock performance

Amid the ongoing economic crisis, bank deposits are decreasing and defaulted loans are increasing – a dilemma that has affected the share prices of banks.

The share prices of 25 out of 35 banks on the DSE are stuck at the floor price.

However, stock market analysts say banks' shares are the most attractive for investment. This is because the price-earnings ratio in the banking sector is below 8% and the dividend yield is in good condition.