Most of the Islamic banks in the country performed the worst during the first nine months of this year
Despite slow credit inflow to the private sector, the banking sector saw a moderate growth in net profit during the first nine months of this year as deposit costs fell amid easing liquidity pressure.
Of the 30 commercial banks listed at the Dhaka Stock Exchange (DSE), 22 banks earned a profit this year – 15 of which saw over 10 percent growth in net profit, according to their disclosures posted on the DSE website.
However, DSE data revealed that most of the Islamic banks performed poorly during this period.
"Good cost management amid downward pressure on deposit rates helped banks to bag healthy profits," said Sheikh Mohammad Maroof, additional managing director of City Bank.
He said banks came out of the liquidity crisis after the government moved to slow down sales of savings certificates by increasing taxes.
"Fall in sales of saving certificates eased liquidity pressure in the banking system. As a result, banks which aggressively collected deposits in the previous year slashed their deposit rates amid a good liquidity position," Maroof explained.
The loan rescheduling spree was another factor that helped banks to cut default loans, which eventually helped them earn more, he added.
Referring to his own bank, which saw around 17 percent growth, Maroof said that good cost management and reduction of default loans helped the bank make good earnings.
He added that portfolio diversification, focusing on micro and small entrepreneurs, also accounted for the healthy profit.
"Most banks in the industry are focusing their business on micro and small enterprises as there are no bindings of offering single digit lending rates," he added.
Last year, banks collected deposits at above 12 percent interest due to an intense liquidity crisis.
In the budget for the current fiscal year, the government increased tax at source on savings instruments up to 10 percent to encourage depositors to park their money with banks.
This move worked well as the sale of saving instruments declined by 92 percent in the July-August period, while deposit growth of banks rose sharply by 11.39 percent in August, according to Bangladesh Bank data.
As deposits shifted from savings instruments to banks, the liquidity crisis eased, lowering pressure on interest rates.
This led deposit rates to fall to 10 percent plus this year, enabling banks to reduce fund management costs, according to industry insiders.
"Banks reaped benefits from a drop in sales of savings instruments, but keeping the deposit rate down in the near future is still a challenge," said Yasin Ali, former supernumerary professor of the Bangladesh Institute of Bank Management (BIBM).
He explained that the rising price of the US dollar could raise inflation, which in turn will raise deposit rates when costs increase for banks.
Helal Ahmed Chowdhury, supernumerary professor of BIBM, said, the downward pressure on default loans saved the provisioning cost of banks.
"The profits will see a boost in December if banks can keep the default loan rate down," he added.
Among the profit making banks, Islami Bank, the largest private bank of the country, made the highest profit at Tk353 crore. But in terms of profit growth, it was among the poorest performers – with 2.6 percent profit growth.
The bank has been seeing a downward trend in its financial indicators since it was taken over by a Chittagong-based business group in 2017.
Social Islami Bank, which was also taken over by the same group the same year, also saw a fall in profit growth.
The net profit of the bank declined by 4 percent to Tk66 crore in the first nine months of the current year, from Tk69 crore in the same period last year.
Al-Arafah Islami Bank saw the worst financial performance, with a deep fall in profits this year. The net profit of the bank dipped by 66 percent to Tk26 crore in the first nine months of 2019, from Tk77 crore in the same period last year.
Brac Bank, which came out on top last year, dropped down to fourth position this year with a drastic fall in profit growth. The profit of the bank fell by 23 percent to Tk316 crore in January-September this year, from Tk412 crore during the same period last year.
The downfall of AB Bank continued this year, making it the second highest loss-making bank. The net profit of the bank fell by 55 percent to Tk14 crore as of September this year, from Tk31 crore during the same nine-month period last year.
Dutch-Bangla Bank continued its upswing in financial performance, making it the second-highest profit maker. The bank saw a 26.3 percent rise in profits, earning Tk336 crore in nine months.
However, The Netherlands Development Finance Company has sold out all stakes in Dutch Bangla Bank Ltd to a little known company named Horizon Associates, raising worries among depositors about the continuity of its performance.
Although most banks earned good profit, this did not lead to any positive impact in share prices at the DSE.
The profit of the banks did not attract stock investors as a negative impression about profit manipulation prevails in the market, according to market experts.
Banks often tend to show profit through forbearance, which has eroded investors' confidence on bank shares, they claimed.
According to the DSE, the market capitalisation of the banking sector declined by 10 percent since December, reflecting that banking shares lost price despite improving in financial performance.