Bangladeshi banks have lowest capital base in South Asia

Signage of Bangladesh Bank is pictured in Dhaka, Bangladesh, 19 July 2023.

Bangladeshi banks maintained the lowest capital adequacy ratio (CAR) of 11.83 per cent among the South Asian countries, according to the Bangladesh Bank's Financial Stability Report 2022.

The central bank report highlighted the situations of CAR in India, Sri Lank, Pakistan and Bangladesh.

People concerned of the banking sector said the Bangladesh Bank's Financial Stability Report 2022 showed the actual scenario of the banks in Bangladesh. A bank with a higher CAR is considered to have a good financial health.

According to the Bangladesh Bank report, banks in all South Asian countries had witnessed a rise in their CAR in the past couple of years except the last year when CAR fell in India, Pakistan and Sri Lank. However, banks in Bangladesh maintained a rise in CAR last year, yet overall it was the lowest among the South Asian countries.

In 2022, banks in Bangladesh maintained a CAR of 11.83 per cent while it was 16.6 per cent for Pakistan, 16 per cent for India and 15.3 for Sri Lanka.

Banks in Bangladesh have been maintaining the lowest capital base in South Asia for the past several years. Local banks maintained a CAR of 10.8 per cent in 2017, 10.5 per cent in 2018, 11.6 per cent in 2019, and 11.8 per cent in 2021, which grew to 11.83 per cent in 2022.

According to banking sector analysts, banks capital is not increase in proportion to the rise in defaulted loans and banks’ risk-based assets are also increasing. Many banks are not revealing their actual financial scenarios; as a result actual capital base of the local banks is weakening.

Banks in Bangladesh maintain the lowest CAR in South Asia because of acute shortage of capital at most of the government banks and several private banks.

According to Bangladesh Bank data, the country’s defaulted loan rose by 16.2 per cent to Tk 1.32 trillion as of March this year, marking 8.80 per cent of total bank borrowings. Other than this, write-off loan stood at Tk 653.21 billion. Overall, the total bad loans of banks in Bangladesh stood at Tk 8.98 trillion.