Banks’ high operating profit conundrum

OPERATING profits of most private banks of the country registered a sharp rise during the last year. The growth rates range between 10 and 60 per cent on the back of a rising demand for credit from the private sector.

For example, Islami Bank Bangladesh, the largest private lender in terms of deposits and loans, bagged about Tk.24 billion as operating profits for 2017, up by 57 per cent year-on-year.

According to media reports, operating profits earned by the private banks during the period under review were impressive.

Although the economic situation and business condition of the country were not favourable in 2017, the banking sector saw such a high operating profit. It is a refreshing news for our banking sector which has otherwise been plagued by several problems including that of non-performing loans.

However, operating profit does not indicate real profit of a bank because provision for loans and advances and corporate taxes are not deducted from operating profits. Banks' net/actual profit is calculated after keeping aside the amount required for provisioning from income and deducting corporate tax.

There is no reason to be complacent at the news of high operating profits. For example, if bank A makes Tk.2.0 billion as operating profit, it may even incur loss after making required provisioning for loans and advances of say Tk.2.3 billion. So the actual condition of a bank can not be evaluated depending on its operating profit.

Md. Zonaed Emran

MTB, CHO, Dhaka

[email protected]