Bad loans cut into banks’ profits in 2014

NewsWorld365 NewsWorld365 , July 27, 2015

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.

Governor Atiur Rahman, while unveiling the report in the presence of chief executives of banks and non-banks, warned the lenders not to give loans to borrowers who do not pay back.

“Be careful about bad debts. Don’t give fresh loans to the borrowers who do not pay back their existing loans.”

As of December 2014, the banking sector’s overall classified loans rose to 9.7 percent against 8.9 percent in December 2013.

The Financial Stability Report 2014, which is the fifth of its kind in Bangladesh, looks into the key risks to the sector.

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

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