Sector sees profitability fall, asset quality cure

Banking saw a little decline in profitability despite a moderate improvement in asset quality, a latest regulatory assessment till end of September 2023 says and mentions some risk factors.
According to the financial stability report released by the Bangladesh Bank (BB Monday, total assets of the banking industry grew by Tk 314.90 billion by then and reached Tk 23,457.73 billion.
However, the quarterly asset growth decreased to 1.36 per cent, down from 3.90 per cent in the previous quarter.
Asset quality improved as the non-performing loan (NPL) ratio decreased to 9.93 per cent at end-September 2023 from 10.11 per cent at the end of June 2023.
The profitability in term of Return on Assets (ROA) and Return on Equity (ROE) slightly declined to 0.41 per cent and 7.46 per cent respectively from 0.43 per cent and 7.88 per cent in the preceding quarter.
The overall capital position of the banking sector, as indicated by the Capital to Risk-weighted Assets Ratio (CRAR), also decreased slightly in the reviewed quarter.
At end-September 2023, the CRAR of the banking sector stood at 11.08 per cent, marginally lower than that of the previous quarter. In addition, the Tier-1 capital ratio decreased by 12 basis points and stood at 7.98 per cent, according to the report.
However, both ratios were above the respective minimum regulatory requirements in line with the Basel III capital framework.
Stress-test results based on end-September 2023 indicate that the banking sector would remain relatively resilient to different shock scenarios. Among the broad risk factors, credit risk remained the major risk factor for the banking sector in terms of its impact on the banks' capital adequacy from a stress testing point of view.
Results of the test indicate that the default of the top 03 borrowers is likely to have the highest impact on the banking sector's resilience, followed by an increase in NPLs by 3 per cent.
For both shocks, the CRAR of the banking sector would fall below the minimum regulatory requirement of 10 per cent. In contrast, the CRAR of the banking sector would remain above the minimum requirement for all shock scenarios of market risk.
At end-September 2023, the assets-to-GDP10 ratio was 52.23 per cent, which was higher than that of the previous quarter. In the review quarter, the PCBs held 67.80 per cent of the banking sector's assets and 72.71 per cent of loans and advances followed by SOCBs with 24.04 per cent and 21.24 per cent respectively.
A declining trend was observed in the performance of financial institutions (FIs) at end-September 2023, owing to the decline in asset quality and profitability.
In the review period, the total assets of FIs decreased marginally and stood at Tk 989.27 billion from Tk 996.85 billion in the preceding period.
However, the ratio of nonperforming loans and leases to total loans and leases outstanding increased by 2.10 percentage points to stand at 29.75 per cent. The annualized return on assets (ROA) of FIs decreased to -2.02 per cent from -1.43 per cent in the previous quarter.

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