Capital shortfall narrows by Tk62,000cr as BB offers deferral
Number of banks with deficits increased to 23 as four more fall into capital shortfall
Highlights
- 19 banks faced Tk1.72 lakh crore capital deficit as of December 2024
- By March this year, the shortfall came down to Tk1.10 lakh crore
- The shortfall comes as 28 banks got deferral facility
- Number of banks with deficits rises from 19 to 23
- NPLs rise by Tk74,000 crore in March quarter
Four more banks slipped into a capital shortfall in the January-March quarter, but the overall shortfall in the sector dropped by nearly Tk62,000 crore within three months – a development that may appear like a miraculous turnaround of Bangladesh's fragile banking industry.
The reality, however, is different. The Bangladesh Bank allowed as many as 28 banks to defer the recognition of their capital shortfall, thereby artificially lowering the reported deficit.
According to a central bank report released yesterday (19 August), at the end of December 2024, 19 banks faced a combined capital deficit of Tk1.72 lakh crore. By March 2025, the shortfall had seemingly dropped to Tk1.10 lakh crore, even as the number of banks with deficits increased from 19 to 23. Of them, six are state-owned, nine are private, seven are Islamic, and one is a foreign bank.
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The four banks that fell into capital shortfall are Premier Bank, Shimanto Bank, United Commercial Bank and Citizen Bank.
Under banking regulations, a bank's loans, advances, and investments are adjusted by risk weights to determine the minimum capital requirement. Government securities carry zero risk weight, while defaulted loans carry 100%. For instance, if a bank's risk-weighted assets stand at Tk5,000 crore, it must maintain Tk625 crore as regulatory capital at a 12.5% adequacy ratio. If it has only Tk100 crore, the capital shortfall is Tk525 crore.
Bankers and economists say the surge in non-performing loans (NPLs) is the key reason behind the capital hole. Higher defaults force banks to keep bigger provisions, which eat up profits and erode retained earnings – the main source of capital build-up for most banks.
Concerns and justifications
The move has drawn both concern and cautious support from experts.
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), expressed concern over the persistent capital shortfall but acknowledged that the Bangladesh Bank may have had valid reasons for the deferral.
"The Bangladesh Bank may have a logical reason for providing a deferral, given the current political and overall economic situation," she told TBS, adding that banks receiving this facility must be brought under strong monitoring to prevent its misuse. "This opportunity was given to increase the business stability of the banks," she said.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank PLC, echoed this sentiment, stating that the central bank had no other alternative at this time.
"This is a major temporary opportunity for the banks. Otherwise, due to provisioning, net income would have turned negative and running the business would have become difficult," he said.
Mahbubur explained that without the deferral, credit lines from foreign banks might have been cut off. Foreign banks are aware of which banks have received regulatory benefits and will continue business transactions with them, he noted.
Troubled banks
The list of banks with the highest capital shortfalls at the end of March is topped by Bangladesh Krishi Bank with a deficit of Tk18,945 crore, followed by Union Bank with Tk17,491 crore, and Janata Bank with Tk12,768 crore.
The combined capital deficit of these three banks alone stood at Tk52,890 crore three months earlier in December. Other banks on the list include FSIBL (Tk7,789 crore), National Bank (Tk6,938 crore), Islami Bank Bangladesh (Tk6,454 crore), Agrani Bank (Tk5,821 crore), Padma Bank (Tk5,170 crore), Rupali Bank (Tk4,470 crore), and Global Islami Bank (Tk3,980 crore).
'There is no quick fix'
Professor Mustafizur Rahman, a distinguished fellow at CPD, highlighted that the capital shortfall is a direct result of provisioning against bad loans, a problem that was previously concealed due to a lack of transparency.
He stressed that while the central bank is taking steps such as ensuring transparency, promoting accountability, and considering mergers and acquisitions, the deep-rooted issues of the banking sector cannot be solved overnight. "There is no quick fix; solutions must come gradually through coordinated strategies."
