Banks, investors decry off-balance sheet provisioning

FE Team | Published: August 18, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Raihan M Chowdhury
The recent Bangladesh Bank directive to maintain 1.0 per cent provisioning against off-balance sheet financings will have a negative impact on the country's listed banks at the time of disbursing dividends to the investors.
Banking sector issues are now at the top of the country's stock market as far as turnover and market capitalisation are concerned.
"Many banks have to have a provision of Tk 250-300 million in order to comply with the new directive and definitely it will affect the profitability of banks and, thus, dividends to the shareholders," a senior executive of a private commercial bank told the FE Thursday.
He said in addition to 35 per cent corporate tax, the new directive on provisioning will seriously affect the banks' profitability.
The Association of Bankers, Bangladesh (ABB) in a meeting Thursday also expressed concern over the issue.
On August 7, the BB asked the commercial banks to keep a general provision of 1.0 per cent against off-balance sheet financings that will come into effect from December 31 next.
Various reforms in the country's banking sector have helped gain strong support against the growing dominance of banking sector issues among investors in the stock market since 2003.
"We feel much secured in investing in banking sector shares as the activities of the listed banks are strongly monitored by both the central bank and the Securities and Exchange Commission (SEC)," M Shariful Hasan, an investor told this correspondent.
Shareholders find it lucrative to invest in the private commercial banks (PCBs) due to their improved financial strengths in recent years.
"As a result, banking sector shares accounted for as much as 56 per cent in the sector-wise turnover in the trading of Dhaka Stock Exchange (DSE) in the month of July," one market operator said.
Besides, in terms of sector-wise market capitalisation, the banking sector's contribution was 55 per cent in the DSE in July.
Besides most of the PCBs have been paying a good amount of dividend either in cash or stock during the last few years attracting the investors.
The compulsory requirement to increase PCBs' paid-up capital to Tk 1.0 billion from Tk 400 million in compliance with an amendment to the Banking Company Act in 2003 ensured a strong financial footing of the new generation PCBs.
The government has recently taken a move to raise the minimum paid-up capital of the PCBs to Tk 2.0 billion.
At present 28 banks are listed on the DSE.
Most of the banking sector shares are included in A-category while IFIC Bank, Rupali Bank, United Commercial Bank, Oriental Bank Ltd and Social Investment Bank are in Z-category.
Two banks -- Shahjalal Islami Bank and Premier Bank -- are in N-category as they were listed recently on the bourses.
Another PCB -- Trust Bank -- has already floated shares and it is going to be listed on the bourses by the end of next month (September).
Meanwhile, Thursday's ABB meeting decided to send a letter to the Bangladesh Bank requesting it to allow the banks to implement the directive staggered over a period of four years through 0.25 per cent provisioning annually.