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Most banks' income swells on higher interest income, return from govt securities

BABUL BARMAN | November 06, 2023 00:00:00

Most of the listed banks logged a higher profit year-on-year in the nine months through September this year, as the government's money tightening policy led to an increase in interest income and return from Treasury bonds.

Twelve of the financial institutions even secured a double-digit growth during the period, compared to the corresponding period last year, reaping benefits from the central bank's move to tame inflation.

Of the 35 banks listed on the Dhaka Stock Exchange (DSE), 22 witnessed a profit growth, 10 endured a drop in income, two saw their losses widen, and one had its income static between Jan-Sept 2022 and Jan-Sept 2023, according to their un-audited financial statements.

During the period, the foreign exchange gain was not as overwhelming as it was last year for the Bangladesh Bank stopped selling dollars to private banks at cheaper rates from its foreign exchange reserves.

But the net interest income, the main source of income for banks, and gains from investments in government securities got a boost.

Bankers say banks have been diverting more funds into government securities to secure fixed income as part of coping mechanism with inflationary challenges.

The Bangladesh Bank (BB) removed the interest rate cap and replaced it with a market-driven reference rate in July, regulated by Six-Month Moving Average Rate of Treasury Bills (SMART).

Since then the maximum lending rate has been fixed at the reference rate plus an interest margin, which was 3 per cent before being hiked to 3.5 per cent in October.

The new lending rate formula for commercial banks helped alleviate the deposit cost pressure.

Ali Reza Iftekhar, managing director of Eastern Bank, said most banks saw earnings grow as net interest income surge after the removal of the interest rate cap.

Moreover, banks invested surplus deposits in government securities.

Due to the introduction of SMART, the lending rate rose up to 10.70 per cent in October and then up to 10.93 per cent this month from the earlier cap at 9 per cent.

Eastern Bank posted a 10 per cent year-on-year growth in profit to Tk 4.26 billion in January-September this year.

Its investment income from government securities soared 24 per cent year-on-year to Tk 6.03 billion in the nine months.

While a majority of the banks gained profits, a few organisations saw their losses balloon to wipe out a big chunk of the overall profit of the banking sector.

For example, the profit of Pubali Bank, one of the country's oldest private banks, stood at Tk 6.13 billion, the highest among listed banks, for the nine months through September, but the National Bank itself had its loss more than tripled year-on-year to Tk 11.23 billion.

As a result, the combined profit of the listed banks dropped 7.44 per cent year-on-year to around Tk 65 billion during the nine-month period.

Brokerage fees paid to banks came down as trading in the stock market slowed due to the implications of the floor-price mechanism.

Most of the banks' commission income fell in foreign currency transactions also because the central bank had squeezed the spread on the purchase and sale of US dollars in a bid to reign in forex market volatility resulting from a shortage of the greenback.

The central bank instructed all lenders in the country to maintain a margin of Tk 1 when buying and selling the US dollars in August last year.

The state-run Rupali Bank saw the highest profit growth at 378 per cent year-on-year to Tk 430 million.

BRAC Bank's consolidated profit jumped 53 per cent year-on-year to Tk 5.81 billion in the nine months, backed by 33 per cent growth in interest income and higher income from its subsidiary bkash.

M Masud Rana, chief financial officer of Brac Bank, said the bank had secured a good return from loans for an increase in the amount of money lent in Jan-Sept this year, compared to a year earlier.

Brac Bank's year-on-year profit derived from subsidiaries jumped 155 per cent to Tk 3.63 billion in the nine months. Bkash played a pivotal role in boosting income.

Its investment income from government securities soared 74 per cent year-on-year to Tk 3.37 billion in the nine months this year.

Dutch-Bangla Bank, the biggest private commercial bank in Bangladesh, posted a 3.36 per cent higher profit to Tk 4.14 billion, taking advantage of inexpensive cost of funds.

Its large network of ATM booths and mobile banking makes funds available even at zero cost. The bank's net interest income soared 25 per cent year-on-year to Tk 15.08 billion.

NCC Bank, Exim Bank, Uttara Bank, Shahjalal Islami Bank, AB Bank, Premier Bank, Social Islami Bank, Islami Bank and Union Bank posted an income growth ranging between 0.40 per cent and 7.56 per cent year-on-year for the nine months to September.

On the other hand, Al-Arafah Islami Bank, Trust Bank, UCB Bank, Southeast Bank, Mercantile Bank, Mutual Trust Bank, NRBC Bank, South-Bangla Bank, ONE Bank and IFIC Bank's profit declined between 1.53 per cent and 40 per cent during the period, compared to the same period last year.

National Bank attributed its poor performance to the classification of a significant amount of loans, as borrowers failed to repay installments on time because of a liquidity crunch. As a result, interest on such loans and advances could not be translated into income, read a statement issued by the company.


Banks' good performance has not helped the stocks move up on the bourses as investors remained indifferent.

Currently, stocks of 29 out of 35 banks are stuck at the floor price, while eight others have been trading at prices below the face value of Tk 10 each share.

The banking sector's price-to-earnings (P/E) ratio is only 7.1, while the overall market's P/E ratio is 14.5. That shows investors have the least interest in bank stocks.

It is hard to predict how the banks will perform in the next quarters. But things do not look optimistic. The private sector credit growth hit a 23-month low to 9.69 per cent in September this year against the backdrop of a go-slow strategy by banks and borrowers amid economic concerns and political tension in the run up to national polls.

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