10 banks’ capital adequacy ratio way below minimum rateAKM Zamir Uddin
Ten scheduled banks, including seven state-run ones, have failed to maintain the minimum 10 per cent capital adequacy ratio against their risk-weighted assets as of June 30 due to their huge amount of defaulted loans and a declining trend in retained earning.
Besides, the overall CAR in the banking industry also decreased to 9.12 per cent as of June 30, whereas it was 10.50 per cent as of December 31, 2012.
Maintaining CAR is important as adequate capital gives banks cushion against any level of shocks relating to credit, interest rate, foreign exchange rate, equity price and liquidity risk.
According to the latest Bangladesh Bank data, the 10 banks also faced a large amount of capital shortfall as of June 30.
The 10 banks are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Krishi Bank, BASIC Bank, Rajshahi Krishi Unnayan Bank, Premier Bank, ICB Islamic Bank and Bangladesh Commerce Bank.
As per the requirements of the BASEL-2 capital framework guideline, every schedule bank has to maintain a minimum 10 per cent CAR against their total risk-weighted assets.
A BB official told New Age on Monday that the central bank had implemented the BASEL-2 guideline in a bid to ensure a good financial health for the banking sector.
But, the 10 banks failed to ensure the minimum 10 per cent CAR against their RWA as they had to reserve a large amount of provision against their defaulted loans, he said.
Defaulted loans have increased significantly in the banking sector as a number of banks had recently been found involved in different scams.
Besides, the decreased profitability in the 10 banks also hit the CAR, he said.
The BB data showed that the four state-run commercial banks were far below in keeping the CAR against their required ratio.
The CARs of the Sonali Bank and Agrani Bank were in the red as their ratio was -2.21 per cent and -1.46 per cent respectively.
The specialised BKB and RAKUB also posted a negative CAR as their ratio was -32.54 per cent and -7.98 per cent respectively.
The capital shortfall of the four state-owned commercial banks --Sonali, Janata, Agrani and Rupali -- stood at Tk 9062.97 crore against a minimum required capital of Tk 10,339.84 crore.
The capital shortfall of three specialised banks — BKB, RAKUB and BASIC — stood at Tk 4,977.17 crore against a required capital of Tk 2,625.31 crore.
The overall capital shortfall in the banking sector was Tk 9,232.27 crore against a minimum required capital of Tk 59,092.85 crore.
Another BB official said that different level of shocks relating to credit, interest rate, foreign exchange rate, equity price and liquidity risk, and their impact on the CAR, were considered to assess the impact of distress conditions in the banking sector.
The lower CAR in the 10 banks means that they will plunge into a vulnerable situation if they face further financial crisis.
According to the BASEL-2 guideline, the banks count their RWA by verifying their asset quality, he explained.
The banks’ pivotal assets are loans and advances, land properties, securities etc, he said.
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