COVID-19, rate cut hit banks’ H1 operating profits

HM Murtuza | Published: 22:34, Jul 01,2020


Most of the banks witnessed a fall in operating profits in the first half of 2020 due mainly to the implementation of the single-digit lending rate and the coronavirus-induced shutdown of business activities.

According to the available data, the operating profits of 12 banks declined significantly in the January-June period of this year and only four banks managed to attain higher operating profits.

Bankers, however, expressed their scepticism whether the banks would be able to attain any net profit or not.

The imposition of ceiling on lending rate from April 1 this year was the major reason for the drastic fall in operating profits in the first half of this year as many of the banks were still collecting deposits at nearly 9 per cent.

Before the rate cut, almost all the banks were charging more than 11 per cent against major lending products while many of them were charging even more than 15 per cent.

Apart from that, the outbreak of coronavirus and imposition of shutdown across the country for around two months had brought the country’s economic activities almost to a halt, leaving existence of many of the businesses at stake.

Due to the coronavirus-induced dismal business environment, the Bangladesh Bank in March announced loan repayment exemption to the borrowers until September this year, leaving the loan recovery of the banks almost suspended.

Non-funded business of the banks has also been affected severely due to the halt in business activities.

As per the available data, Agrani Bank made the highest operating profit, Tk 512 crore, in the period.

Pubali Bank, Southeast Bank and Exim Bank recorded Tk 405 crore, Tk 342 crore and Tk 317 crore in operating profits.

NCC Bank managing director and chief executive officer Mosleh Uddin Ahmed told New Age that the operating profits of almost all the banks declined in the first half of the current year due mainly to the implementation of 9-per cent lending rate and the halt in economic activities from April.

There was no business in last three months, he said.

Mentioning that the operating profits of all the banks seemed good on paper,

Mosleh Uddin said, ‘The classification of loans has been stopped following the BB instruction and that is why we are considering the unrealised income as profits.’

The real picture would be visible when the central bank would withdraw the accounting exemptions that the borrowers were enjoying and the regular repayment rules would be reinstated, he said.

He was doubtful whether it would be even possible from the banks to make any net profit if the borrowers failed to repay instalments after the exemption period ended.

‘Considering the global scenario, we are happy,’ he said, adding that a faster recovery from the situation would make recovery of the overdue instalments easier.

Speaking about the income fall, NBL additional managing director ASM Bulbul told New Age that the bank had implemented the lending rate ceiling earlier than the other banks and that was why the bank’s operating profit dropped.

‘We should have lowered the deposit rate to 6 per cent before the implementation of lending rate ceiling,’ he said.

Modhumoti Bank, a fourth generation bank, managed to attain higher operating profit in the January-June period this year. Its profit increased to Tk 125 crore from Tk 98 crore.

Modhumoti Bank managing director and chief executive officer Md Shafiul Azam told New Age that the bank had managed to attain comparatively better financial results as a major portion of its income came from contractor finance and non-funded loans that had remained solid during the period.

He also mentioned that the bank had managed to offset the effect of the 9-per cent lending rate ceiling as it had access to low-cost funds accumulated against the collection of trade licence fee, private university fee and utility fee.

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