DHAKA, SEPT 15: The health of the country’s banking sector experienced some sign of deterioration in last year (2012) with rise of non-performing loan,

decline in profitability, downgrading of assets and shortfall of provisioning. The view was expressed by the central bank’s Financial Stability Report 2012 released on Sunday attributing the reasons mainly to a number of financial crimes in the banking sector, stringent regulations for loan classification and provisioning.

Despite the constraints and scams, the country’s banking system continued to demonstrate resilience in last year (2012),

said Bangladesh Bank (BB) governor Dr Atiur Rahman while unveiling the report at the banks head office amidst a gathering of heads of the banks and non-bank financial institutions on Sunday. 

Deputy governors, top BB officials and chief executive officers of schedule banks were present, among others.
The governor urged the bankers to strictly follow compliance norms of banks and establish good governance so that the country's financial institutions remain safe from any adverse impact of economic downturn at home and aboard. 

 
The governor pointed out that the profitability and other indicators of the banks deteriorated somewhat because of application of new and more stringent regulations which, he said, eventually would yield good results. 

The report, Financial Stability Report 2012, detailed the facts and notes of observation on developments of the country's financial sector in last year. 

The report observed the evaluation of Bangladesh Bank regarding major trends as well as risks and fragilities in the financial system, focusing on their implications to financial stability and efforts of the central bank in mitigating those risks. Although the financial sector experienced some tresses,

the governor said, a good number of favourable developments took place afterwards. 

The gross reserves attained a healthy level of meeting more than five months import payments and the inflationary pressure are in a much more tolerant level. Liquidity provision of the banks also improved considerably.  

To shield the banking and NBFI sectors from risks and vulnerabilities, reasonable emphases are being given to both on-site supervision and off-site surveillance, said the central bank chief. 

However, efforts from central banks alone will not be fruitful if effective implementation of prudential rules and regulation are not properly ensured by scheduled banks, non-bank financial institutions, and regulators of other financial intermediaries, he added. 

As banks are the hub of the financial intermediation process, it is an important responsibility for banking sector executives to retain public confidence in the banking system. 

According to the report, the classified loan in the country’s banking sector rose to 10 per cent last year from 6.2 per cent in the previous year. 

Five worst banks concentrate some 62.7 per cent of the total classified loans. 
Almost two thirds of classified loans are concentrated in three state owned commercial banks and two specialized commercial banks.

The classified loans in the state owned commercial banks are higher due to the nature of their operations which included among other lack of efficiency in fund management and political motivated lending.
The was also a downgrading of assets against the biggest ever identified financial crime,

committed by two corporate groups with different branches of  state owned commercial banks, said the report. 
The ongoing global recession and inadequate infrastructure to facilitate industry also intensified the growth of classified loans during the period. 

The provisioning shortfall in the banking sector, according to the report, increased to Tk 52.6 billion as of end of 2012 from a surplus of Tk 9.6 billion at the end of the previous year. 

Three state owned commercial banks, two specialized commercial banks, and three domestic private commercial banks are among those saddled with a significant provision shortfall.

To overcome the crisis and put the country’s banking sector on strong footing, the report suggested for strengthening their internal control framework, improving corporate governance,

more stringent supervision of banks and others financial institutions, introducing consolidated supervision in the banking industry and strengthening cooperation among various regulators of financial intermediaries.

After the launching programme deputy governor SK. Sur Chowdhury briefed the media on various issues discussed in the financial report.