During the first half of 2023, the financial performance of 35 listed banks in Bangladesh has been significantly impacted by the volatility in the foreign exchange market. This has resulted in a notable 9 percent year-on-year decrease in their combined profits, totaling Tk 4,160 crore. Among the banks, only 13 reported reduced profits due to the curbed commissions from forex dealings.
Amidst this scenario, Bank Asia emerges as a standout profit-maker, experiencing a remarkable 52 percent increase in profits, reaching Tk 354 crore during the January-June period. Conversely, National Bank faced substantial losses, sinking by 262 percent to Tk 626 crore.
Ali Imam, the Managing Director and CEO of Edge Asset Management, attributes the profit decline to lower income from commissions and brokerage fees. The reduction in commission income is attributed to Bangladesh Bank’s decision to tighten the spread on the purchase and sale of US dollars in response to forex market volatility caused by a shortage of the greenback. This measure was implemented in August 2022.
The slowdown in stock market activities due to the implications of the floor-price mechanism has also played a role in the decrease of brokerage fees paid to banks. Moreover, stringent conditions imposed by the government on non-essential imports have affected commissions from opening letters of credit (LCs).
Although interest income experienced a 7 percent year-on-year growth, reaching Tk 11,711 crore during the January-June period, it was insufficient to compensate for the decline in commissions. This can be attributed to the ceiling on interest rates, which restricted growth in this segment.
While there was some relief from the relaxation of rules for accounting non-performing loans (NPLs), the overall value of reported NPLs remains concerning and poses a systematic threat to the banking sector.
Among the banks that managed to generate profits, Islami Bank follows Bank Asia with a 1 percent year-on-year decline in gains, totaling Tk 343 crore during the same period. On the positive side, Pubali Bank, Shahjalal Islami Bank, and Jamuna Bank witnessed rising profits, reaching Tk 278 crore, Tk 272 crore, and Tk 256 crore, respectively.
On the other hand, ICB Islamic Bank faced significant losses, reporting a deficit of Tk 26 crore compared to profits of Tk 1 crore during the corresponding period in the previous year.
Mirza Elias Uddin Ahmed, the Managing Director and CEO of Jamuna Bank, expressed concerns about the banking sector’s slightly stressed position due to high NPLs, inflationary pressure, and political tension, all contributing to the current gloomy business climate.
As of March 31, the total value of NPLs in the overall banking sector reached Tk 131,621 crore, reflecting a 9 percent increase from the previous quarter and a 16 percent year-on-year rise, as reported by updated data from Bangladesh Bank. This high level of NPLs has negatively impacted the income generated from loans by the banks.
Furthermore, private sector credit growth has witnessed a slowdown, standing at a 15-month low of 11.1 percent in May. Entrepreneurs are exercising caution amid the prevailing political tension and pressure on foreign exchange reserves.
Despite the challenges, Jamuna Bank’s CEO, Mirza Elias Uddin Ahmed, expressed optimism for the future of the banking business, stating that it will thrive once the political tension is resolved.