In the third quarter of fiscal year 2023 (Q3FY23), Bangladesh banking sector stands at a crossroads, displaying a mixed outlook. Bangladesh Bank's (BB) latest quarterly report brings to light several key indicators, raising both optimism and concerns about the industry's overall health.
According to a news report published in this daily, one concerning development is the increase in the ratio of non-performing loans (NPLs) to total loans. This surge, primarily observed in Private Commercial Banks (PCBs), has been attributed to the discontinuation of relaxed loan repayment policies. Gross NPLs rose from 8.16 percent in Q2FY23 to 8.80 percent in Q3FY23, with PCBs witnessing a similar trend, reaching 5.96 percent. While Foreign Commercial Banks (FCBs) and Specialized Banks (SBs) held stable NPL ratios, State-owned Commercial Banks (SCBs) showed a slight improvement.
However, Capital adequacy ratios (CRAR) remained relatively stable across the banking system but with some fluctuations. PCBs and SCBs experienced minor declines, with the overall industry CRAR decreasing from 11.83 percent to 11.23 percent. These figures raise questions about the industry's resilience in the face of potential challenges.
Moreover, the banking sector's profitability rate also took a hit, with both returns on assets (ROA) and return on equity (ROE) declining. Net profit fell, partly due to reduced non-interest income, and ROA and ROE dropped to 0.39 percent and 6.82 percent, respectively. SCBs and PCBs were not immune to this downturn.
On a positive note, deposit growth surged in Q3FY23 due to the removal of deposit interest rate restrictions. Conversely, bank advance growth declined slightly, impacting the overall advance-deposit ratio (ADR), which inched up to 79.36 percent. Excess liquidity, which had been tightening, saw a modest increase in Q3FY23.
The BB report emphasizes the challenges posed by the high NPL ratio in the banking sector. It underscores the need for ongoing measures in supervision and loan recovery frameworks. The amendment of the Bank Company Act of 1991 is a proactive step by the BB to address these challenges.
To sum up, the Q3FY23 performance of the Bangladesh banking sector presents a mixed bag of successes and challenges. While deposit growth and liquidity offer a glimmer of hope, the NPL ratio, capital adequacy, and profitability pose concerns.
In order to secure a resilient and thriving banking industry, stakeholders must remain proactive in addressing these issues, while regulators like Bangladesh Bank play a pivotal role in guiding the way forward. The path ahead demands adaptability and foresight as the industry navigates the complex currents of the global financial landscape.