The net aggregate profits of banks are likely to shrink this year, mainly due to fall in their earnings of interest income and difficulties in repayments of loan instalments by their clients, amid sluggish economic activities during the last few months, top bank executives told the FE late this week.
They also said their provisioning requirements at a level higher than those of the last year are also making a dent in their profitability.
They, however, did not quantify the fall in their respective net profits in percentage terms at this stage, awaiting still further developments.
"Of course, most of the banks are bracing themselves for a marked decline in their profits, both before or after tax, this year. I cannot comment on the actual extent of such a decline right now, in percentage terms," said Association of Bankers, Bangladesh (ABB) Chairman, Mr Nurul Amin.
Mr. Amin said many banks might retain their previous year's status, while many others will fail to hold their previous positions.
He said fall in the operating profits of the operational entities in the country's banking sector will adversely impact the revenue collections of the government.
"It has a chain effect, and the entire economy will more or less be affected," he stated.
The situation of the state-owned commercial banks (SoCBs) is worse than that of the private commercial banks (PCBs), senior bankers at the SoCBs said.
"I would not like to comment on the profitability positions of banks right at this moment," said a senior official of Agrani Bank Limited.
However, according to the available preliminary data, thirty commercial banks of the country posted an aggregate amount of Tk 15.95 billion as profits during January-September period of 2013. This amount is 48 per cent lower than Tk 30.50 billion of the corresponding period of the previous year.
Senior bankers said the on-going political turmoil resulted in poor investment and trading activities.
They cautioned that the country's investment scenario might deteriorate further due to the instability, prevailing in the country's polity.
The banking sector, which has been pro-active about supporting economic activities in manufacturing, trading and agriculture sectors, especially during the last one decade, helped maintain the growth of the country's gross domestic product (GDP) at around 6.0 per cent since 2005, they noted.
Bankers said they are keen about funding more on large investment projects, including those relating to infrastructure, but local investors are shying themselves away because of, what appears to be, an unstable political scenario.
"How will we make profit when our funds remain idle that keeps the investment at a low level?", Mr Amin, also managing director of NCC Bank Limited, asked.
The banking sector had excess liquidity, amounting to Tk 830 billion, at the end of this November, according to the Bangladesh Bank (BB) data. It was Tk 800 billion at the end of last July.
About the present situation ABB, vice chairman Ali Reza Iftekhar said: "We must make arrangements for provisioning against non-performing loans whose volume has been on the rise, while calculating our net profits."
Mr Reza, also managing director of Eastern Bank Limited, said the overall scenario in the banking sector is not as promising as it was in the previous years.
The amount of non-performing loans, he observed, is gradually increasing, amid the prevailing volatile political environment.
"A high amount of non-performing loans will seriously affect the balance-sheets of the banks," he added.
According to the available preliminary data, the classified loans of the banks are on the rise in absolute terms. Until September 30 this year, the classified loans of the PCBs stood at 7.3 per cent, while it was more than 28 per cent in the cases with the SoCBs.
Some bankers, however, said imposition of the BB's new loan classification and rescheduling rules, amid the political volatility, has been one of the key factors behind the fall in their profits.
Increased amounts of funds required for loan-loss provisioning, on the basis of the central bank's new rules, have contributed to slashing the profits of the banks", said one of the top PCB officials.
However, the BB said the profitability position that reflects the like return on asset (ROA) in the banking sector declined marginally from 0.64 per cent at the end of December 2012 to 0.61 per cent at the end of June 2013.
It happened primarily because of a faster growth of expenditures on account of deposits than that of interest income earnings and also the needs for meeting provisioning requirement sat a higher level by the banks, such sources added.
