Banks’ profitability declined in the December-end quarter as both of their return on assets (ROA) and return on equity (ROE) reduced in the period.
According to the Bangladesh Bank quarterly report for October-December, the overall ROA and ROE reduced to 0.59 per cent and 10.55 per cent respectively at the end of December 2023 against 0.62 per cent and 10.67 per cent respectively at the end of December 2022.
ROA and ROE for the private commercial banks declined to 0.62 per cent and 10.13 per cent at the end of the second quarter of FY24 against 0.71 per cent and 11.04 per cent at the end of the same quarter of FY23.
Bankers said that profitability of banks declined due mainly to its high distressed assets, inflationary pressure and other economic challenges.
The amount of non-performing loans soared to Tk 1.45 lakh crore in 2023 from Tk 1.20 lakh crore in 2022.
The BB report claimed that the banking sector was implementing a comprehensive plan to lower non-performing loans.
The banking sector experienced tight liquidity conditions in the second quarter of FY24, partially attributed to a contractionary monetary policy and consistent interventions by the BB in the foreign exchange market.
At the end of the second quarter in FY24, excess liquidity went down to Tk 1.63 lakh crore compared with that of Tk 1.64 lakh crore at the end of the first quarter of FY24.
The excess liquidity, represented by the surplus of the statutory liquidity ratio (SLR) as a per cent of the total demand and time liabilities (TDTL), experienced a modest decline to 8.9 per cent at the end of the second quarter of FY24 from 9.2 per cent of the first quarter of FY24, the BB report said.
Given the higher inflationary environment, the central bank will continue monetary tightening in the rest of the quarters of FY24 until inflation reaches the desired level, according to the BB quarterly report.
Although inflation softened marginally during October to December, it remained persistent above 9 per cent, posing a concern, it said.
The BB maintained its restrictive monetary stance and adopted a unified exchange rate policy to manage inflationary pressures.
The government is also taking steps to remove supply constraints by addressing issues such as syndication, hoarding and other unethical practices, the BB report said.
After adopting an interest rate corridor (IRC) system replacing the previous monetary aggregates targeting framework starting on July 1, 2023, the policy rate was revised upward twice.
Consistent with the tight monetary policy stance, the BB also revised upward the margin on the reference lending rate, relaxing the lending interest rate for the commercial banks.
The weighted average inter-bank call money rate followed an upward trend and moved closely with the policy (repo) rate during October to December.
The call money rate increased to 8.84 per cent in December 2023 against 6.41 per cent in September 2023.
