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Bangladesh Banks Grapple With Capital Shortfall as National Savings Certificates Sales Surge

EditorVenkatesh Jartarkar
Published 10/09/2023, 04:16 PM
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The banking sector in Bangladesh is experiencing a capital shortfall, with the deficit escalating to Tk 33,743 crore ($3.99 billion) at the end of June 2023, according to recent data. This marks a slight increase from Tk 33,575 crore ($3.97 billion) recorded in March of the same year. The shortfall has impacted various financial institutions including state-owned commercial banks, specialized banks, private commercial banks, and foreign entities.

Among the most affected are Bangladesh Krishi Bank, Agrani Bank, Rupali Bank, Janata Bank, BASIC Bank, RAKUB, ICB Islamic Bank, National Bank, Bangladesh Commerce Bank and Padma Bank. Meanwhile, Sonali Bank managed to significantly reduce its capital shortfall from March to June. Banks are required by regulations to maintain a minimum capital adequacy of 10% against their risk-weighted assets. As of June 2023, the banking sector's overall capital-to-risk (weighted) assets ratio stood at 11.2%.

The situation has been exacerbated by an increase in defaulted loans which rose to Tk 1,56,039 crore ($18.4 billion) by June 2023 from Tk 1,31,620 crore ($15.6 billion) in March of the same year. This increase is attributed to irregularities and weak management within the banking sector.

In light of these developments, experts such as Dr. Wahid Uddin Mahmud have emphasized the need for good governance and accountability within the banking sector. Dr. Zahid Hussain has urged for no compromise with any bank on graft and anomalies while Professor Dr. Abul Barkat has advocated for a firm drive to recover defaulted loans. Professor Anu Muhammad highlighted the influence of financial perpetrators on the banking sector.

Simultaneously, Bangladesh's national savings certificates (NSCs) have experienced a surge in net sales, jumping to Tk 5,562 crore ($657.5 million) in July-August 2023 from Tk 401.20 crore ($47.4 million) during the same period in the previous year, according to data from the National Savings Department. This surge comes amidst heavy government borrowing from banks, which amounted to Tk 1,24,122 crore ($14.7 billion) in FY23, causing a liquidity crisis and possibly shifting the government's focus towards NSCs for fundraising.

Despite offering higher interest rates than banks and being considered safer investments during an economic crisis, NSCs had previously witnessed negative growth due to declining interest rates and stringent document requirements. However, the government plans to take a loan of Tk 18,000 crore ($2.13 billion) by selling savings certificates in FY23-24, contrasting the positive NSC sales of Tk 19,915.75 crore ($2.35 billion) in FY21-22.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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