38 banks now weak: Cenbank findings

The Bangladesh Bank has identified 38 banks, including six state-owned banks, as weak lenders out of the 54 analysed.

The central bank has categorised the banks at a time when it is contemplating merging 10 banks by early next year.

According to a Bangladesh Bank's internal report, more than two-thirds of the banks in the country are now weak. The banks in the "Red Zone" are the worst or poor, the banks in the "Yellow Zone" are weak, and the banks in the "Green Zone" are in good condition.

Of the 54 banks, 12 are in critical condition, of which nine have already moved to the red zone. The other three out of 29 banks in the yellow zone are very close to the red zone.

On the other hand, only 16 banks, including eight local ones, have found a place in the green zone.

This report has been prepared based on data from 54 banks for the past six semi-annual periods, spanning December 2020 to June 2023.

The Financial Stability Department has been preparing the Bank Health Index and HEAT Map on a half-yearly basis following the methodology. Based on six different ratios used in CAMELS rating (capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk) excluding the sensitivity to market risk but including the leverage ratio proposed in Basel-3, estimating Z-scores.

Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank and ICB Islamic Bank have been excluded from analysis because their data points differ significantly from other observations/data of the sample banks, while Bengal Commercial Bank, Citizens Bank, Community Bank Bangladesh, and Probashi Kallyan Bank have not been taken into account due to a lack of historical data.

The central bank's report revealing such horrific information came at a time when the discussion of merging weak banks with strong banks is gaining momentum in the country.

Bangladesh Bank Spokesperson Md Mezbaul Haque told TBS yesterday that he is unaware of the report regarding the banks' condition. "I don't know anything about which department has made the list of weak and strong banks."

He, however, said, "We made a new Prompt Corrective Action Framework last December. It classifies troubled banks into four categories based on their non-performing loans (NPLs) and Capital to Risk (Weighted) Assets Ratio (CRAR). It will be effective from May 2025. According to the PCA Framework, the banks of the country will be classified into 4 categories."

Commenting on the matter, a senior Bangladesh Bank official said, "The central bank regularly categorises banks based on various indicators every six months. I think even those banks that are shown as strong banks in this list are weak."

In a meeting with bank owners last week, Bangladesh Bank Governor Abdur Rouf Talukder said that about 10 banks in the country will be merged by January 2025. In that case, the weak banks have the option to coordinate with the bank they want to merge with, he said.

Former Bangladesh Bank governor Salehuddin Ahmed told TBS that in comparison to the economic structure, there is an excess of banks in the country. "A significant portion of those that have been established has been influenced by political considerations or taken over by someone close to power."

He further said, "Banks, when operated efficiently, do not pose any questions. Instead, they are often neglected without proper monitoring, leading to various irregularities over time. If proper management were in place, this list would not have been so lengthy."

Which banks fall in what category

Out of six state-owned commercial banks, four banks (BASIC Bank, Janata Bank, Agrani Bank and Rupali Bank), four private commercial banks (Padma Bank, Bangladesh Commerce Bank. National Bank and AB Bank) and one foreign bank (National Bank of Pakistan) fell in the red zone.

The yellow zone contained 3 commercial banks (Bangladesh Development Bank and Sonali Bank, First Security Islami Bank) that were close to becoming in the red zone.

Banks that fill in the yellow zone have 3 state-owned commercial banks, 19 conventional private commercial banks and 8 Shari'ah-based Islami banks. 

They are: Sonali Bank, Bangladesh Development Bank, First Security Islami Bank, IFIC Bank, Meghna Bank, Social Islami Bank, Islami Bank Bangladesh, ONE Bank, United Commercial Bank, NRB Bank, Al-Arafah Islami Bank, Standard Bank, Union Bank, NRBC Bank, Mercantile Bank, Mutual Trust Bank, Exim Bank, Dutch-Bangla Bank, Global Islami Bank, Premier Bank, BRAC Bank, Southeast Bank. City Bank, Trust Bank, South Bangla Agriculture and Commerce Bank, Modhumoti Bank, Dhaka Bank, Uttara Bank and Pubali Bank.

The central bank report mentioned that these banks need supervisory attention due to the relative deterioration of their health in comparison to the industry average. 

Importantly, special attention is required for the banks falling in the red zone. The stress test results of the sample banks have also been incorporated in analysing the health of the banks especially in the yellow zone to demonstrate the vulnerability of the banks.

The banks that were in the green zone are: Prime Bank, Eastern Bank, HABIB Bank, NCC Bank, Midland Bank, Bank Alfalah, Bank Asia, Shimanto Bank, Jamuna Bank, Shahajalal Islami Bank, Woori Bank, HSBC, Commercial Bank of Ceylon, Citi Bank NΑ, Standard Chartered Bank Bangladesh and State Bank of India.

Bangladesh Bank data shows as of December 2023, the total amount of non-performing loans in bank accounts stood at Tk145 lakh crore. The non-performing loans of 12 banks in the red zone amount to Tk90 lakh crore, which is 62% of the total NPLs.