The profitability and asset quality of the country's banking sector deteriorated in the quarter ended in March last, according to a Bangladesh Bank report published Thursday.
The asset quality slightly deteriorated as the non-performing loans (NPLs) ratio increased to 8.80 per cent in the January-March quarter (Q1) of this year from 8.16 per cent of the previous quarter ended in December 2022.
"Profitability of the sector dwindled as return on assets (ROA) and return on equity (ROE) stood at 0.39 per cent and 6.83 per cent respectively compared to 0.62 per cent and 10.70 per cent in the preceding quarter," says the Financial Stability Assessment Report, January-March 2023.
It also noted that the domestic economy experienced high inflation and pressure on foreign exchange reserves.
Overall capital position of the banking sector decreased slightly; however, the sector remained compliant in terms of various liquidity requirements, it added.
During the quarter under review, the capital to risk weighted asset ratio (CRAR) of the banking sector stood at 11.23 per cent, which was 60 basis points lower than that of the previous quarter.
In addition, Tier-1 capital ratio decreased by 39 basis points and stood at 8.0 per cent. However, both the ratios were above the minimum regulatory requirement.
In addition, the banking sector maintained advance-to-deposit ratio (ADR), cash reserve ratio (CRR), statutory liquidity ratio (SLR), liquidity coverage ratio (LCR), and net stable funding ratio (NSFR) above the respective minimum regulatory requirements.
Stress tests at the end of March 2023 indicate that the banking sector would continue to remain moderately resilient to different shock scenarios.
Among the broad risk factors, according to the report, credit risk remained the major risk factor for the banking sector in terms of its impact on capital adequacy.
Results of the test depict that either an increase in NPLs by 3.0 per cent or a default of top three large borrowers is likely to affect the banking sector's resilience significantly, leading the CRAR to fall below the minimum regulatory requirement.
In contrast, CRAR of the banking sector would remain above the minimum requirement for each stress scenario of the market risk factors.
In the event of a combined shock, excluding defaults by top large borrowers and an increase in NPLs in the highest outstanding sector, the CRAR of the banking system would decline to 6.67 per cent from pre-shock CRAR of 11.23 per cent.
jasimharoon@yahoo.com
© 2026 - All Rights with The Financial Express
