The concentration of defaulted loans among the top five banks surged 30 percent year-on-year to roughly Tk 75,000 crore in the April-June quarter of 2023, according to a report by Bangladesh Bank issued last week.

Also termed as non-performing loans (NPLs), the ratio of defaulted loans in the top five banks was 47.97 percent in June last year, up 4.51 percentage points from March.

The top five banks suffered from Tk 57,196 crore of defaulted loans at the end of March.

Similarly, the concentration of defaulted loans in the top 10 banks grew 3.03 percentage points to 64.93 percent of the total NPLs.

Total defaulted loans in the banking sector stood at Tk 156,000 crore as of June last year and these 10 banks had Tk 101,315 crore of the amount, according to the central bank.

In March the same year, the 10 banks accounted for Tk 81,478 crore, or 61.9 percent, of the defaulted loans, Bangladesh Bank said in its April-June issue of the Financial Stability Assessment Report.

The central bank also said the higher concentration of NPLs "might pose a concern for the banking industry as a whole".

In the Financial Stability Assessment Report, Bangladesh Bank did not disclose the names of banks with a high burden of defaulted loans.

However, in its annual report for financial year 2022-23, the central bank said state-owned commercial banks, specialised banks and private banks had the highest NPL rate, with state banks accounting for one-fourth of the total defaulted loans.

Bangladesh Bank's financial stability report said the banking sector demonstrated a modest increase in profitability in the April-June period of 2023, albeit amid further deterioration in asset quality.

It said assets in the banking sector increased by 3.9 percent in the quarter. However, asset quality declined as the NPL ratio rose to 10.11 percent at end-June 2023 from 8.80 percent at end-March 2023.

The ratio of NPL to total outstanding loans dropped to 9.93 percent at the end of September, according to central bank data.

Bangladesh Bank said among the broad risk factors, credit risk remained the most prominent factor in terms of its impact on the banks' capital adequacy.

Results of the test indicate that an increase in NPLs by 3 percent is likely to have the most severe impact on the banking sector's resilience in terms of capital adequacy, followed by the default of the top three borrowers.

The report also said any further credit risk and spike in NPLs would push the banking sector's Capital to Risk-weighted Asset Ratio (CRAR) to below the minimum requirement of 10 percent.

The central bank said in the event of a 3 percent increase in NPLs, four banks would fail to maintain the minimum required CRAR.

And if the top three borrowers of each bank defaulted, then 20 banks would fail to maintain the minimum required CRAR, it added.

However, the report said, "in terms of market risk, the banking industry appeared to be resilient to exchange rate and equity price shocks but slightly vulnerable to interest rate shock".

The banking sector would stand above the minimum requirement of CRAR for all shock scenarios of market risk, it added.