Banks in Bangladesh had a mixed bag as some booked better operating profits in the past six months to June while others suffered from volatility on the forex market and ballooning non-performing loans.
People familiar with the industry told the FE that some banks lacked dollars to settle letter of credits or LC. Local banks usually earn much from foreign trade as 'charges' which stretch between 20-25 per cent of their total earnings.
The country's financial market has been facing serious troubles in terms of dollar shortages since the beginning of the war in Ukraine in February 2022. But the forex-market volatility became acute in the middle of 2022.
Syed Mahbubur Rahman, managing director and CEO at the private commercial-bank MTB says the local banks had suffered much in the first half of the calendar year for want of foreign exchanges to settle the LCs.
Bangladesh is largely dependent on imports both for industrial consumption and domestic market. There had been tightening of imports since the middle of last year to stop the country's foreign-exchange reserves depleting.
"Some banks had to buy dollars from the central bank, which also led to reduction in their volume of liquidity," he told the FE about the quandary banks are trying to get out.
The banker also mentions that the cost of funds of the industry has been rising as the depositors are pressing them hard to raise the interest rate, now that the caps are lifted. "We are being asked frequently by depositors to raise the rate of interest on deposits."
Operating profit, also called earnings before interest and tax (EBIT), as interest and taxes are non-operating expenses, is not actual profit. But this type of profit gives an impression on health of the industry.
Md Shaheen Iqbal, a deputy managing director of the SME-focused private commercial-bank BRAC Bank told the FE that banks' earnings dropped mainly from the foreign trade.
He also said the spread between the deposit and lending rates has squeezed in recent period as the banks have been paying much higher than before to the depositors as interest.
But the lending rate, which is a major source of earnings of the banking industry, remained stymied at 9.0 per cent.
"During the last six months ending June, the customers wanted higher rates which were different in the first six months in 2022," he said.
He said many banks had plunged into difficulty in surviving due to poor liquidity.
"Still some banks had carried over such situations even last six months, the profitability is an ignorable issue for them…"
On the other hand, the growth in deposits was also hit hard by many rumours in the past year, he said, adding: "Some banks still facing such problems to get deposits."
jaimharoon@yahoo.com
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