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Banks’ return on equity, asset falls sharply in 2018

HM Murtuza | Published: 00:00, Jun 25,2019

 
 

A file photo shows the Bangladesh Bank headquarters at Motijheel in Dhaka. Return on equity and asset of the country’s banks almost halved at the end of December last year from that of a year ago, showed a Bangladesh Bank report titled ‘Bangladesh Systemic Risk Dashboard’. — New Age photo

Return on equity and asset of the country’s banks almost halved at the end of December last year from that of a year ago, showed a Bangladesh Bank report titled ‘Bangladesh Systemic Risk Dashboard’.

As per the BB report published on Monday, return on equity (ROE) dropped to 4.4 per cent at the end of December, 2018 while the rate was 10.4 per cent a year ago.

Besides, return on asset (ROA) of the banks dropped to around 0.3 per cent at the end of December, 2018 while the rate was around 0.7 per cent in the previous year.

ROE is considered a measure of how effectively management is using a company’s assets to create profits while the ROA gives a manager, investor or analyst an idea how efficient a company’s management is at using its assets to generate earnings.

Officials of the central bank said that growing non-performing loans had become a major burden for the country’s banking sector.

As the cost increased, banks’ return on equity and return on asset dropped sharply.

Banks will have to reduce the amount of defaulted loans by the way of expediting recovery procedure for reducing their cost and to maximise their profits, they said.

Shareholders of the banks would be demoralised with the sharp fall in return, they said, adding that the reflection of such attitude of the investors had already been evident in the country’s capital market.

As per the BB data, the amount of defaulted loans in the scam-hit banking system skyrocketed to Tk 1,10,873.54 crore in the first quarter of 2019.

A BB report submitted to the High Court on Monday showed that the actual defaulted and inactive loan amount would reach Tk 2.2 lakh crore if the Tk 80,000 crore in loans, the recovery of which has remained stalled due to different court orders, and the Tk 30,000 crore in write-offs were added to the amount.

Of the Tk 1.11 lakh crore, non-performing loans grew by 18.06 per cent or Tk 16,962.14 crore in the first quarter of the calendar year 2019 from Tk 93,911.4 crore at the end of December, 2018.

As per another BB statistics, net profits of all banks dropped by Tk 4,040 crore in 2018 from Tk 9,510 crore in 2017.

The BB report, however, said that the banks’ cost-to-income ratio decreased slightly from the position of June 2018 and the net interest income to total operating income ratio continued rising at the end of December, 2018.

It also showed that the ratio of Tier-1 capital to total risk-weighted assets decreased slightly in December, 2018 from the position of June, 2018, but remained above the regulatory requirement of 6.0 per cent.

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