THE failure of 11 banks to maintain adequate capital against their risk-weighted assets, keeping to Basel III capital requirements for banks, riding on the wings of irregularities in loan disbursement, has weakened the financial strength of the banks concerned, exposed the stability of the banks to a threat and put depositors at probable consequent risks. The capital shortfall in 11 banks increased to Tk 253.85 billion in all in the April–June quarter of 2021, up by Tk 6.01 billion from Tk 247.84 billion in three months. While Bangladesh Krishi Bank registered a shortfall of about Tk 118.44 billion with an increase by about Tk 6.15 billion and BASIC Bank a shortfall of about Tk 19.27 billion with an increase by Tk 8.55 billion in three months, the capital shortfall situation in some other banks improved, taking the total shortfall amount to Tk 6.01 billion together. The other banks still faced with capital shortfall include Sonali Bank, Janata Bank, Agrani Bank, ICB Islamic Bank, Rajshahi Krishi Unnayan Bank, Bangladesh Commerce Bank, Rupali Bank, Padma Bank and AB Bank. The capital shortfall situation in six of them — Krishi Bank, ICB Islamic Bank, BASIC Bank, Bangladesh Commerce Bank, Padma Bank and AB Bank — deteriorated.

The Basel III accord requires banks to maintain whichever is higher of the minimum capital requirement at 10 per cent of the risk-weighted assets or Tk 4 billion as capital. No adherence to this may put the banks and depositors at risk while harming the financial health of the banks. An increase in the capital shortfall is further worrying in that now there has been some regulatory forbearance, yet non-performing loans in the banking sector increased to about Tk 981.64 billion as of June 2021, up by about Tk 94.30 billion from about Tk 887.34 billion as of December 2020. If the upward trend of non-performing loans continues, the banks faced with capital shortfall and the banks barely maintaining the capital adequacy would be facing severe problems after the withdrawal of the regulatory forbearance. Banks should, therefore, be forced to improve their capital base to better tackle an increase in non-performing loans after the withdrawal of the regulatory forbearance and to stop them from facing a further decline in their capital base. The Guidelines on Risk-Based Capital Adequacy stipulates punitive measures, including the imposition of penalty by the central bank, in cases of failure of any banks to maintain the minimum capital within the stipulated period.

The central bank — which appears not to have taken any significant punitive or corrective action against the banks mired, having registered an increase, in capital shortfall — must scale up its oversight on the situation so that the banks adhere to the required capital adequacy and put in efforts to reduce the amount of their non-performing loans. A lenient approach would only create further risks for the banks and the depositors who repose their trust in the banks. With 11 banks having already been in the problem of capital shortfall, the situation, if allowed to continue, might not only bring down the banks in question but the whole of the banking sector.