Capital Shortfall in Q2: 15 banks fall short of Tk 33,744cr

A record 15 banks, including seven state-run lenders, faced capital shortfall in the second quarter of 2023, in yet another indication of the worrying state of the financial sector.

Together, they logged in capital shortfall of Tk 33,744 crore in the quarter that ended on June 30, according to the latest data from Bangladesh Bank. This is the second-highest volume of capital shortfall seen by the banking sector. The highest one -- Tk 34,640 crore -- was recorded in the last quarter of 2021.

As per Basel III, which is the international regulatory framework for banks, the minimum capital adequacy ratio (CAR) is 10.5 percent with an added 2.5 percent conservation buffer. The 15 banks failed to maintain the minimum CAR.

Bangladesh's banking sector has maintained the lowest CAR in South Asia, according to the central bank's Financial Stability Report 2022. At the end of June, the banking sector's CAR was 11.19 percent.

In the second quarter of the year, there were four new entrants other than the usual suspects of BASIC, Agrani, Janata, Rupali, Sonali, Bangladesh Krishi, Rajshahi Krishi Unnayan, National, Padma and ICB Islamic Bank.

The three-year-old Bengal Commercial Bank -- whose chairman and vice-chairman are Mahbubul Alam and Md Jashin Uddin, the current and immediate past presidents of the Federation of Bangladesh Chambers of Commerce & Industries respectively -- logged in a capital shortfall of Tk 87.93 crore.

Similarly, Citizens Bank -- whose former chairman was Law Minister Anisul Huq's mother, Jahanara Huq -- has a capital shortfall of Tk 97.10 crore.

Both the banks, which were awarded the licences by the BB along with Community Bank in 2020, blamed the new central bank requirement of having a minimum paid-up capital of Tk 500 crore from June 15 -- up from Tk 400 crore previously -- for the shortfall.

"We are not actually in capital shortfall because the central bank increased the capital requirement after awarding the licence to us," said Tarik Morshed, managing director and chief executive officer of Bengal Commercial Bank.

The BB has given the bank until December to meet the capital requirement, he said, adding that Bengal Commercial Bank has virtually no defaulted loans.

The shortfall is because the regulator raised the minimum capital requirement, said Mohammad Masoom, the MD and CEO of Citizens Bank.

"That is why this is not an actual capital shortfall. We have been given until June next year to raise the capital of our bank. Now, our capital is at Tk 403 crore, which has increased from the Tk 400 crore when we started our operation," he added.

For the new capital requirement, the local operations of Pakistan's Habib Bank and National Bank of Pakistan are also facing a capital shortfall of Tk 36.33 crore and Tk 42.45 crore respectively, according to BB officials.

Meanwhile, Bangladesh Krishi Bank continues to log in the highest capital shortfall in the banking sector. This time, its shortfall is Tk 15,540.72 crore, up by Tk 1,447 crore in the three months to June.

Agrani's capital shortfall rose by 12 percent to Tk 3,767.84 crore.

The state-run commercial banks provide a large number of services to the general people and the government free of cost and if those banks claim service fees for those, there would be no capital shortfall, said Mohammad Shams ul Islam, a former Agrani MD.

"The government and the central bank can find a way to meet their capital shortfall," he added.

Scam-hit lenders BASIC and Janata's capital shortfall rose to Tk 2,352.37 crore and Tk 2,189 crore respectively.

At the end of June, Rupali's capital shortfall was Tk 2,230 crore and Sonali's Tk 10.61 crore. State-run specialised lender Rajshahi Krishna Unnayan Bank's shortfall was Tk 2,385 crore.

The shortfall of Bangladesh Commerce Bank, where Chattogram-based conglomerate S Alam Group has a stake, stood at Tk 1,313.81 crore. ICB Islamic Bank, which was born out of the scam-riddled defunct Oriental Bank, has a shortfall of Tk 1,812 crore.

Troubled private lenders National and Padma's shortfall was Tk 1,379 crore and Tk 497 crore respectively.

The capital shortfall in the usual suspects is due to loan irregularities, according to experts.

"The banking regulator will have to take strict action against those who are involved in the loan irregularities and it must have a strong commitment for the betterment of the sector," said Mustafa K Mujeri, a former chief economist of the central bank.