PCBs: Good time and not-so-good time
Wednesday, 4 January 2012
Shamsul Huq Zahid
The period encompassing two consecutive calendar years -- 2009 and 2010 -- was the golden one for the country's commercial banks. Riding on the stock market bull, most of them made hefty profits during that time.
But the stock bubble burst in the final month of 2010 took much of the shine off their balance sheets in the following year -- 2011. The figures relating to operating profits of the banks, disclosed unofficially early this week, bear testimony to that fact.
The rate of growth of profit of most private commercial banks (PCBs) in 2010 ranged between 35 per cent and 118 per cent over that of the previous year. But barring the Shariah-based Islamic banks, the rate of profit growth of most PCBs was either nominal or negative in the just concluded calendar year.
However, belying pessimistic speculations, banks definitely did well in a difficult situation, mainly arising out of the stock market debacle. The operating profits of the banks in 2011, in most cases, were around the same level of the previous year. Some banks slightly fell short of the previous year's earnings and others surpassed the same, to some extent.
This in fact highlights the strength of the banks. It is believed that most part of their profits in 2011 came from core banking segments, including external trade financing. Bankers took an aggressive approach to expand their business against the backdrop of an anticipated slowdown in major economic activities.
However, what concerns the shareholders of the banks most is the net profit, calculated after deducting the amount required to provision the classified loans, payment of tax at a rate of 42.5 per cent, and making room for building some capital reserve in a number of cases, from the operating profit.
The amount required for provisioning the non-performing loans (NPLs) varies from bank to bank. The volume of NPLs in the state-owned banks has been historically very high. But in the case of PCBs, this until 2010 was low. However, only the PCBs know the state of affairs with their default loans in 2011. Knowledgeable circles suggest the rate of default loans went up in the just concluded year for a variety of factors, including, among others, the fall-outs from the stock market debacle, higher lending costs for borrowed funds, shortage of power, gas etc., for operation of enterprises, increased cost of imports on account of both volatility in the global market and depreciation of the Bangladesh Taka.
However, one particular decision of the central bank, taken under pressure from the government, has saved the banks from keeping high level of provisions against the loss sustained from their capital market investments, taking into account only the net loss. Banks have been allowed to keep such provision through netting of gain/loss.
What is rather surprising is that the operating profit figures of the banks, published in a section of newspapers have failed to create any impact on the stock market which has gone to a moribund state, similar to that in the aftermath of its collapse in 1996. The price level of bank stocks remained almost unchanged in all the trading sessions since January 01 last.
There is no denying that the country's banking sector is now doing better than before. The central bank in recent years has stepped up its vigilance over the operations of the PCBs, along with efforts to strengthen the latter's capital base under the ongoing Basel-II and the upcoming Basel III programmes.
Yet there exists a feeling, rightly or wrongly, that there are management weaknesses and a tendency among a section of sponsor-directors of private banks to hoodwink the banking sector regulator and take undue advantages whenever opportunities come. And the regulator is not still as agile as it should be to take such unscrupulous sponsor-directors to task, particularly for reasons of dearth of quality manpower, mostly at the mid-level positions.
Finally, the private sector banks have been able to build up a strong image over the years. The image, many tend to believe, could have been stronger had not a section of their leaders rubbed their shoulders in public with, and played to the tune of, men infamous for cheating thousands of retail investors.
zahidmar10@gmail.com
The period encompassing two consecutive calendar years -- 2009 and 2010 -- was the golden one for the country's commercial banks. Riding on the stock market bull, most of them made hefty profits during that time.
But the stock bubble burst in the final month of 2010 took much of the shine off their balance sheets in the following year -- 2011. The figures relating to operating profits of the banks, disclosed unofficially early this week, bear testimony to that fact.
The rate of growth of profit of most private commercial banks (PCBs) in 2010 ranged between 35 per cent and 118 per cent over that of the previous year. But barring the Shariah-based Islamic banks, the rate of profit growth of most PCBs was either nominal or negative in the just concluded calendar year.
However, belying pessimistic speculations, banks definitely did well in a difficult situation, mainly arising out of the stock market debacle. The operating profits of the banks in 2011, in most cases, were around the same level of the previous year. Some banks slightly fell short of the previous year's earnings and others surpassed the same, to some extent.
This in fact highlights the strength of the banks. It is believed that most part of their profits in 2011 came from core banking segments, including external trade financing. Bankers took an aggressive approach to expand their business against the backdrop of an anticipated slowdown in major economic activities.
However, what concerns the shareholders of the banks most is the net profit, calculated after deducting the amount required to provision the classified loans, payment of tax at a rate of 42.5 per cent, and making room for building some capital reserve in a number of cases, from the operating profit.
The amount required for provisioning the non-performing loans (NPLs) varies from bank to bank. The volume of NPLs in the state-owned banks has been historically very high. But in the case of PCBs, this until 2010 was low. However, only the PCBs know the state of affairs with their default loans in 2011. Knowledgeable circles suggest the rate of default loans went up in the just concluded year for a variety of factors, including, among others, the fall-outs from the stock market debacle, higher lending costs for borrowed funds, shortage of power, gas etc., for operation of enterprises, increased cost of imports on account of both volatility in the global market and depreciation of the Bangladesh Taka.
However, one particular decision of the central bank, taken under pressure from the government, has saved the banks from keeping high level of provisions against the loss sustained from their capital market investments, taking into account only the net loss. Banks have been allowed to keep such provision through netting of gain/loss.
What is rather surprising is that the operating profit figures of the banks, published in a section of newspapers have failed to create any impact on the stock market which has gone to a moribund state, similar to that in the aftermath of its collapse in 1996. The price level of bank stocks remained almost unchanged in all the trading sessions since January 01 last.
There is no denying that the country's banking sector is now doing better than before. The central bank in recent years has stepped up its vigilance over the operations of the PCBs, along with efforts to strengthen the latter's capital base under the ongoing Basel-II and the upcoming Basel III programmes.
Yet there exists a feeling, rightly or wrongly, that there are management weaknesses and a tendency among a section of sponsor-directors of private banks to hoodwink the banking sector regulator and take undue advantages whenever opportunities come. And the regulator is not still as agile as it should be to take such unscrupulous sponsor-directors to task, particularly for reasons of dearth of quality manpower, mostly at the mid-level positions.
Finally, the private sector banks have been able to build up a strong image over the years. The image, many tend to believe, could have been stronger had not a section of their leaders rubbed their shoulders in public with, and played to the tune of, men infamous for cheating thousands of retail investors.
zahidmar10@gmail.com