Bangladesh government needs around Tk 135 billion for recapitalisation of the state-run banks because of their weak financial health, the Moody's has said.
The government in the first phase injected Tk 41 billion into the four state-owned commercial banks (SoCBs) in the fiscal year (FY) 2013-14.
In the second phase, three state-run specialised banks and a financial institution were given a total of Tk 3.09 billion to meet their capital needs.
 During the July-December period of the current FY15, Sonali Bank Limited and BASIC Bank Limited were given Tk 15 billion to restructure their capital base.
"However, we estimate further recapitalisation needs of Tk 135 billion ($1.8 billion or 1.0 per cent of GDP) in order for banks to reach a 10 per cent capital adequacy requirement even while maintaining minimum coverage ratios," the US-based Moody's Investors Service said in its latest analysis.
On the other hand, the financial position of private commercial banks (PCBs) is better than those of the state-run banks in Bangladesh mainly due to the former's lower rate of classified loans, according to the analysis.
The global credit rating agency has also termed country's banking sector risk 'moderate' following a weak asset quality and poor profitability of the SoCBs.
"Private sector banks are in a better financial position vis-Ã -vis state-run banks, with a gross non-performing loan (NPL) ratio of 6.3 per cent as of September 2014," the Moody's said.
The share of private sector banks, which comprise over 60 per cent of total banking system assets, continues to grow, it added.
"We assess risks stemming from Bangladesh's banking system as 'Moderate (-)'. Although weak asset quality and poor profitability in the SoCBs, which account for 30 per cent of total banking system assets, expose the government to contingent liabilities; strong funding and the growing share of privately-run banks limits the risk of contagion to the broader financial sector," the Moody's said.
In 2010-2011, a number of scams in SoCBs resulted in a loss of confidence and deteriorating financial performance, according to the report.
"However, a relaxation of loan rescheduling rules at the time resulted in the ratio of NPLs remaining artificially low, estimated at 8.9 per cent in 2013 by the IMF, from 10 per cent in 2012," it noted.
The Moody's also said incorporating adjustments made by the central bank to maintain data comparability, the system-wide NPL ratio deteriorated to 11.6 per cent at the end of September 2014.
"This increase in NPLs was driven by the poor asset quality of SoCBs, NPLs for which stood at 23.9 per cent at the end of that quarter," the report said. Â
Ongoing reforms to strengthen SoCBs include steps to improve governance and internal control, the imposition of credit growth limits, an automated financial reporting system, and gradual recapitalisation.
Stringent adherence to reform should help improve the financial position of the state-owned banking system, and the Moody's believes contagion risks are limited.
The system is well-funded, with the loan-deposit ratio hovering at 75 per cent.
siddique.islam@gmail.com
PCBs are doing better than state-run banks: Moody\\\'s
Siddique Islam | Published: May 04, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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