HomeEconomic IndicatorBangladeshi banks struggle with low funds as demand for savings certificates surges...

Bangladeshi banks struggle with low funds as demand for savings certificates surges amid financial challenges.

The Banking Sector in Bangladesh Faces Capital Shortfall as Savings Certificates Sales Surge

Bangladesh Banks Grapple With Capital Shortfall

The banking sector in Bangladesh is currently facing a capital shortfall, with recent data showing a deficit of Tk 33,743 crore ($3.99 billion) at the end of June 2023. This figure represents a slight increase from the Tk 33,575 crore ($3.97 billion) recorded in March of the same year. The impact of this shortfall is being felt across various financial institutions, including state-owned commercial banks, specialized banks, private commercial banks, and foreign entities.

Affected Financial Institutions

Among the banks most affected by the capital shortfall are Bangladesh Krishi Bank, Agrani Bank, Rupali Bank, Janata Bank, BASIC Bank, RAKUB, ICB Islamic Bank, National Bank, Bangladesh Commerce Bank, and Padma Bank. However, Sonali Bank has managed to significantly reduce its capital shortfall between March and June. It is important to note that banks are required to maintain a minimum capital adequacy of 10% against their risk-weighted assets. As of June 2023, the overall capital-to-risk (weighted) assets ratio for the banking sector stood at 11.2%.

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Defaulted Loans and Weak Management

The situation has been further 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 surge is primarily attributed to irregularities and weak management within the banking sector.

Importance of Good Governance and Accountability

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 involved in graft and anomalies, while Professor Dr. Abul Barkat has advocated for a firm drive to recover defaulted loans. Professor Anu Muhammad has highlighted the influence of financial perpetrators on the banking sector.

Surge in National Savings Certificates Sales

At the same time, Bangladesh’s national savings certificates (NSCs) have experienced a significant surge in net sales. According to data from the National Savings Department, NSC sales jumped 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. This surge comes amidst heavy government borrowing from banks, amounting to Tk 1,24,122 crore ($14.7 billion) in FY23. The increase in NSC sales may be attributed to the liquidity crisis caused by government borrowing, possibly shifting the government’s focus towards NSCs for fundraising.

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Positive Outlook for NSCs

Despite previously witnessing negative growth due to declining interest rates and stringent document requirements, NSCs are now offering higher interest rates than banks and are considered safer investments during an economic crisis. In fact, the government plans to raise Tk 18,000 crore ($2.13 billion) by selling savings certificates in FY23-24. This contrasts with the positive NSC sales of Tk 19,915.75 crore ($2.35 billion) in FY21-22.

This article provides an overview of the current capital shortfall in Bangladesh’s banking sector and the surge in national savings certificates sales. The importance of good governance and accountability within the sector is emphasized, along with the need to recover defaulted loans. As NSCs become an increasingly attractive investment option, the government is exploring their potential for fundraising.

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