Prime Bank and Uttara Bank have posted a double-digit profit growth for 2023, riding on higher interest income along with significant earnings from the government securities.
The exchange gain was not as overwhelming during the year, but interest income, the core source of income for banks, and gains from government securities supported the lenders' impressive earnings growth in an adverse business climate engendered by inflationary pressure.
Since the withdrawal of the interest rate cap in July last year, the gap between the interest rates charged by banks on loans and the interest rates paid by banks against deposits has widened. As the interest spread widened, the profitability of the lenders increased.
The Bangladesh Bank (BB) replaced the 9 per cent maximum lending rate with a reference rate to be regulated by the average rate of Treasury bills over a period of six months.
Hence, the maximum lending rate has been rising, aligned with the reference rate called SMART (six-month moving average rate of Treasury bills).
The lending rate jumped up to 13.55 per cent for April based on the SMART rate of 10.55 per cent and an interest margin of 3 per cent.
Moreover, in the case of consumer loans, the lending rate is as high as 14.55 per cent as banks are allowed to add up to 4 per cent margin to the benchmark rate for such credits.
The banks' prudence in making higher investments in government securities paid off and helped secure a significant profit growth, alongside net interest income.
Prime Bank benefited from tax clearance
Prime Bank's consolidated net profit stood at Tk 4.80 billion for 2023, marking a 20 per cent jump compared to its earnings a year earlier.
In its earnings note, the lender attributed the growth to higher interest income and investment income.
Tax rebate also contributed to the income growth, said Md. Habibur Rahman Chowdhury, chief financial officer of Prime Bank.
"We have cleared 17 years of disputed tax this year. The impact of the tax clearance was positive. That's why our profit has increased.
"We have also invested a good amount of funds in government securities. An increased yield rate boosted income from this segment," said Mr Chowdury.
On top of that, the bank's average interest spread increased to 4.83 per cent as of October last year, from 4.15 per cent in January of that year, according to latest data of the Bangladesh Bank.
The board of directors declared a 17.50 per cent cash dividend for 2023, same as for 2022.
This dividend declaration is in line with the bank's commitment to sustainable financial performance and return to its shareholders, said the bank.
The lender's net asset value stood at Tk 30.76 per share, which was Tk 28.41 in 2022, and the net operating cash flow stood at Tk 10.09 per share, which was Tk 0.23 in 2022.
The bank said the operating cash flow had increased due to a growth in deposits.
It set May 30 for annual general meeting (AGM), while the record date is May 7.
The dividend amount will be distributed to all eligible shareholders based on the record date and is subject to the approval of shareholders at the upcoming AGM, according to the statement.
Despite the profit growth, the bank stock remained unchanged at Tk 21.90 per share on Tuesday, compared to the previous day.
Uttara Bank's low cost of fund helped growth
Uttara Bank, the first generation private commercial bank, has posted a 17 per cent year-on-year growth in profit to Tk 3.17 billion for 2023.
Its average interest spread increased to 4.23 per cent in October last year from 3.78 per cent in January 2023, according to BB data.
The lender also earned handsome amounts from Treasury bills as they invested heavily on the government securities, said Md Golam Mustafa, chief financial officer of Uttara Bank.
"We have a good reputation and our cost of funds is low," said Mr Mustafa, adding that the bank had an insignificant amount of bad loans and so kept a small amount in provision.
Uttara Bank's non-performing loans stood at 5.49 per cent as of December 2023, showed the central bank data.
Buoyed by the profit growth, the board of directors has declared 17.50 per cent cash and 12.50 per cent stock dividends for 2023. It disbursed 14 per cent cash and 14 per cent stock dividends for 2022.
The final approval of the dividends will come at the annual general meeting (AGM) scheduled for May 30. The record date is May 7.
The bank said a stock dividend had been recommended to strengthen its capital base and to support business growth. Stock dividend has been declared out of the accumulated profit.
However, the profit growth had no positive impact on the bank's stock. The stock did not move at all on the Dhaka bourse on Tuesday and remained at Tk 25.80 per share as the day before.
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