18 banks will not be able to maintain the minimum capital if the top three borrowers of the country's banks default. Already, these banks have capital shortages against their risk-based assets. This information has been highlighted in a report of Bangladesh Bank.
Analysts say that capital is the main basis for evaluating the financial situation of banks. Lack of capital means poor asset quality. Such banks are identified as weak.
According to the report of Bangladesh Bank, the banks as a whole are under the pressure of defaulted loans. The banking sector cannot maintain a minimum CRAR in view of the risk of default. While the banking sector is somewhat capable of dealing with other minor risks, it will be difficult for the sector to deal with the risk of rising interest rates.
According to the report, if non-performing loans increase by 3 percent, it will not be possible for the five banks of the country to maintain a minimum CRAR of 10 percent.
The report identified two areas of risk. As stated, one is market causal risk; Second is credit risk.
It also said that at the end of June, 11 of the country's 61 banks could not maintain a capital reserve ratio (CRAR) of 10 percent against minimum risk-based assets. In this context, after examining the remaining 50 banks, it is said that most of the banks will be able to maintain the minimum CRAR by dealing with specific risks.
Banks are required to maintain capital as per international norms. Banks in Bangladesh are required to maintain 10 percent of risk-weighted assets as reserve capital. If a bank is unable to reserve this stipulated amount, it is considered as capital deficiency of that bank.
The report found that taking the two risks together, 12 banks would not be able to maintain the minimum CRAR.
According to the report, if defaulted loans increase by 3 percent at the end of June, the CRAR of the banking sector may come down to 8.39 percent. What could have been 8.67 percent at the end of March.
If the top three borrowers of the banks defaulted, the CRAR of the banking sector could have come down to 7.15 percent at the end of June; At the end of March, it could have been 7.18 percent.
Apart from this, in terms of market risk, if the interest rate changes by 1 percent, the CRAR of the banking sector could have come down to 9.90 percent at the end of June. If the currency exchange rate changes by 5 percent, it could be 10.61 percent and if the value of the equity falls by 10 percent, it could be 10.34 percent.
The combined result of credit risk and market risk is that the CRAR of the banking sector could have been 5.27 percent at the end of June and 5.73 percent at the end of March. In other words, it appears that the level of bank risk has increased in June compared to March.
According to the report, the total amount of CRAR reserved by the country's banking sector has decreased during the April-June quarter. In this quarter, the CRAR of the banking sector was 10.64 percent; At the end of March this year, which was 10.85 percent. Even then, the minimum rate is higher than 10 percent.
Reserve CRAR of 22 banks was below 15 percent at the end of June. 55.82 percent of the assets of the banking sector are in their hands. Apart from this, 28 banks had CRAR more than 15 percent. It had 22.68 percent of the total assets.
