Resilience in Bangladesh鈥檚 banking sector could be significantly affected if top three borrowers default on their loans, as outlined in a financial stability assessment report by the Bangladesh Bank.
The report, covering the July-September quarter of 2023, indicated that such a default would have the most substantial impact on the sector鈥檚 resilience, followed by a 3 per cent increase in non-performing loans.
For both shock scenarios, Capital to Risk-weighted Assets Ratio of the banking sector would fall below the minimum regulatory requirement of 10 per cent, it said.
A 3-per cent increase in non-performing loans or a default of the top three borrowers is likely to affect the banking sector鈥檚 resilience significantly. Otherwise, the sector would remain resilient to all adverse shock scenarios.
The said report found a slight deterioration in the banking sector鈥檚 resilience in terms of maintaining the minimum required CRAR and the number of non-compliant banks.
If the top three borrowers of each bank defaulted, nineteen banks would fail to maintain the minimum required CRAR, the report said.
If NPLs increased by 3 per cent, five banks would fail to maintain the minimum required CRAR.
The report said that among broader risk factors, credit risk remained the major one for the banking sector in terms of its impact on capital adequacy.
At end-September 2023, the CRAR of the banking sector stood at 11.08 per cent, marginally lower than that of the previous quarter.
At end-September 2023, profitability in the banking sector, as measured by return on assets and return on equity, slightly declined to 0.41 per cent and 7.46 per cent respectively from that of 0.43 per cent and 7.88 per cent in the preceding quarter.聽
During the review quarter, the domestic economy faced a number of challenges, including elevated inflation, a decline in foreign exchange reserves and devaluation of the local currency.
At the end of September 2023, annual average inflation increased to 9.29 per cent, 0.27 percentage points higher than the preceding quarter.
Wage earners鈥� remittance inflow registered a decrease of 11.99 per cent from that of the preceding quarter and stood at $4.91 billion at the end of the review quarter.
At the end of September 2023, the gross foreign exchange reserves stood at $26.91 billion, while it would be $21.06 billion as per BPM6.
The Bangladeshi taka has been experiencing depreciation against the US dollar for several quarters, with the dollar rate reaching Tk 109.97 compared with Tk 105.92 at the end of June 2023.