High nonperforming loans (NPLs) eroded banks' earnings last year, the central bank said in a report yesterday.

Subsequently in 2014, return on asset and return on equity, the two major indicators to measure a bank's profitability, decreased by 20 and 260 basis points to 0.7 and 8.1 percent respectively from a year ago.

The rise in NPLs last year forced banks to set aside a major portion of their profits for provisioning, said SK Sur Chowdhury, deputy governor of Bangladesh Bank, at the unveiling of the Financial Stability Report 2014.

Chowdhury blamed the high NPL of state banks for the overall profit decline in the banking industry.

Non-interest income has increased the banking sector's operating profits 14.3 percent year-on-year to Tk 21,270 crore in 2014, according to the report.

Yet, the net profit of the industry has declined 17.3 percent to Tk 6,000 crore last year, mainly due to the extensive growth in bad debt provisions.

The amount of provisions almost doubled to Tk 8,430 crore last year from Tk 4,610 crore a year ago, according to data from the BB.

The report reviewed macroeconomic developments and analysed the financial performance of banks and non-banks, the money and capital markets.

The latest report, for the first time, has included microfinance institutes.

The report found the banking sector's capital adequacy ratio (CAR) to be 11.4 percent at the end of 2014, which is slightly higher than the minimum requirement of 10 percent.

Banks having CARs within the range of 10 to 16 percent hold 79 percent of the overall banking assets, which according to the BB indicates financial stability.

Liquidity stress remained at an acceptable level in 2014 due to the stable call money rate and the desired level of loan-deposit ratio of 70.98 percent. The call money rate was within the 6-8 percent range.

Term deposits accounted for 56.4 percent of total deposits, which shows the banking sector's greater reliance on term deposits and contributes to the stability of the financial system.

 However, the risk was with the concentration of deposits with few banks, as 51.7 percent of the deposits were with just ten banks.

The report said this concentration is expected to be reduced gradually as nine new banks will try to collect deposits from the market.

The report revealed that the capacity of the BB-formed Deposit Insurance Trust Fund has been increased to Tk 363.6 crore, enough to reimburse the deposit claims of 26 banks. The fund is expected to reach over Tk 1,000 crore in 2019.

The report also analysed the risks of the banks.

Credit risk appears to be the most significant with 85.7 percent of the total Risk Weighted Assets of the banking system. The risk was mostly from on-balance sheet items.

The report said stress testing results revealed that the individual banks and the banking system, as a whole, are resilient enough to different levels of stress scenarios.

It said banks are resilient for more than five business days with severe liquidity stresses.

On non-bank financial institutions (NBFIs), the stability report found that their asset quality improved in 2014.

Classified loans and leases dropped 30 basis points to 5.3 percent. On the other hand, CAR has increased 290 basis points to 21.2 percent. Stress test results revealed that 23 of the 31 NBFIs were resilient in 2014.

As the size of the MFIs is relatively smaller compared to the banking sector, it does not pose any immediate threat to the stability of the financial system.

Asset size of the MFIs is only 5 percent of the banking sector. Besides, MFIs have much lower NPLs -- 4.18 percent -- compared to that of the banking industry.

On the capital and foreign exchange markets, the report said these areas remain stable now despite some volatility last year.

Chowdhury also spoke on the BB programmes that have been taken to strengthen the capacity of the banks and NBFIs.

The BB has decided to start the implementation of Basel III framework from 2015, aiming to strengthen the capital base of the banking sector and enhance risk resilience as well.

He said the central bank has also taken an initiative to develop a 'Coordinated Supervision Framework' involving all other financial regulators to avoid contradictions and unnecessary duplications.

Ali Reza Iftekhar, chairman of Association of Bankers, Bangladesh and chief executive of Eastern Bank, and Selim RF Hussain, chief executive of IDLC Finance, spoke on behalf of banks and NBFIs respectively at the programme.

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The Motijheel and Chittagong offices of Bangladesh Bank's Cash Department will remain open on Wednesday to facilitate the payment of salary, bonus and other remunerations of the readymade garment workers.A Bangladesh Bank circular, issued by its Human Resource Department (HRD), said an office order was issued in this regard in reference to the Offsite Supervision Department's Circular on July 12.The staff of Bangladesh Bank who will work on the holiday would get remunerations against their work as per the rule, said the circular.

The Anti Corruption Commission (ACC) has decided to resume its probe into the non-funded part of the much-talked-about Sonali Bank loan scam."As Sonali Bank authorities in its internal probe found that some 37 commercial banks were involved in non-funded part of Sonali Bank loan scam, the Commission has decided to resume its probe into it," ACC director Belal Hossain told the monthly press briefing of the ACC at its media centre on Tuesday. According to official sources, the Foreign Exchange Division of Sonali Bank handed over a 6,000-page probe report to the Commission on June 16, 2015, and taking the report into the account the ACC recently decided to restart probe into the non-funded part of the loan scam. On April 7, 2014, the ACC revoked its ongoing probe into the non-funded part of loan scam saying it was out of the commission's jurisdiction.Hall-Mark Group swindled out a total of Tk 3,547 crore from the Sonali Bank-both funded and non-funded ones.The controversial group swindled out Tk 1,568 crore from the bank's Ruposhi Bangla branch in cash while it plundered Tk 1,709 crore from different private banks, showing Sonali Bank clearance.In the non-funded part, Hall-Mark Group plundered Tk 1,709 crore from 37 commercial banks -- 25 private banks, five foreign banks and seven government banks.On October 4, 2012, the ACC filed 11 cases against 27 officials of Sonali Bank and Hall-Mark Group on charge of swindling out Tk 1,568 crore from the bank's Ruposhi Bangla branch in cash.On September 16, 2013, the Commission approved 11 charge-sheets against 25 people for the embezzlement of the money.The ACC, in January 2013, filed another 26 cases against 35 top officials of Sonali Bank and five business firms, including 17 of the bank, for swindling out over Tk 350 crore from it.

Purnendu Kumar Roy has been promoted as General Manager of Janata Bank Limited recently. 
Purnendu Kumar Roy joined Janata Bank Limited as a Senior Officer in 1984. 
He obtained MSS in Philosophy from the Dhaka University.