Banks struggle in their core business as net interest income falls
Bankers say that the rising volume of classified loans has led to an increase in interest suspense accounts
Most listed banks experienced a decline in their core business—net interest income—during the January–March quarter of this year, primarily due to reduced interest earnings from disbursed loans amid an increase in loan rescheduling.
Of the 36 listed banks, 12 have disclosed their quarterly financial statements, with only Bank Asia yet to publish its detailed report.
Among the 11 banks that disclosed full data, 10 reported significant drops in net interest income, while only Uttara Bank posted growth in this segment during the quarter compared to the same quarter a year ago.
The remaining banks have yet to publish their annual and quarterly financial statements as they are still awaiting approval from the Bangladesh Bank.
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However, despite the decline in core business income, all except Dutch-Bangla Bank and City Bank posted profit growth, driven largely by strong returns from Treasury investments, according to their disclosures.
According to the financial statements, Midland Bank incurred a loss of Tk18 crore as its borrowing costs surpassed lending returns. Meanwhile, net interest income fell at most banks: Mutual Trust Bank by 72%, City Bank by 62%, Prime Bank by 33%, Jamuna Bank by 31%, Pubali Bank by 24%, Dutch-Bangla Bank by 23%, NCC Bank by 17%, BRAC Bank by 10%, and Eastern Bank by 3%. Only Uttara Bank posted growth, with a 35% increase in net interest income.
In terms of profitability, BRAC Bank led with a 53% year-on-year profit growth to Tk486 crore in the January–March quarter. Eastern Bank saw a 6% rise to Tk228 crore, Midland Bank 40% to Tk10.38 crore, and Mutual Trust Bank 11% to Tk85 crore. NCC Bank's profit surged by 67% to Tk28 crore, Prime Bank by 58% to Tk167 crore, Pubali Bank by 4% to Tk185 crore, Uttara Bank by 114% to Tk120 crore, and Jamuna Bank by 9% to Tk179 crore.
Only Dutch-Bangla Bank's profit dropped by 31% to Tk88 crore, and the City Bank profit remained unchanged at Tk92 crore.
Several senior bankers said that the rising volume of classified loans has led to an increase in interest suspense accounts. Under current regulations, interest income can no longer be shown as accrued on the balance sheet.
Moreover, collections from irregular loans, even if received, must be kept in suspense accounts rather than recorded as income since the loans are not classified as regular. As a result, overall interest income has declined.
Additionally, a large number of loans were rescheduled in December. According to the current rules of the Bangladesh Bank, unless both the principal and interest are recovered from rescheduled loans, the income cannot be reflected on the balance sheet. This means that rescheduling is not significantly improving banks' reported income.
One bank official said, "Due to the ongoing economic slowdown, many businesses are struggling. If they aren't earning, how can they repay their loans? And there's no certainty about how long this slowdown will last."
A chief financial officer of a bank, speaking on condition of anonymity, said that due to rising inflation, banks have been compelled to increase deposit rates in line with central bank directives, which in turn has raised their overall borrowing costs.
"Meanwhile, because of the economic slowdown, the growth in loan disbursements has declined. As a result, banks have been forced to increase their investments in government treasury bonds, which offer comparatively higher interest rates. It is primarily through these treasury gains that many banks are managing to show strong profits," the official added.
According to the Bangladesh Bank data, banks rescheduled Tk35,850 crore in defaulted loans during October–December 2024. In total, banks rescheduled Tk56,582 crore in 2024 — a 9.86% drop from Tk62,582 crore in 2023.
The Bangladesh Bank maintained its relaxed rescheduling policy, allowing defaulters to negotiate directly with banks. This led to widespread use of the facility and helped many avoid loan classification.
Consequently, non-performing loans surged by Tk2 lakh crore in a year, reaching a record Tk3.45 lakh crore by December 2024.
As per the central bank data, at the end of March, the weighted average interest rate on deposits stood at 6.17%, which was 1.25 percentage points higher than the previous year, while the weighted average lending rate jumped by 2.29 percentage points to 12.04%.
