Capital Adequacy

Capital adequacy is determined by Capital to Risk Weighted Assets (CRAR) which is most important. Currently, a banking company is to maintain 10 percent of Risk Weighted Assets (RWA) or Tk. 200 crore whichever is higher as its minimum required capital. Shortfall of capital by the four state-owned commercial banks (Sonali, Janata, Agrani and Rupali banks) imposed a condition that government would
have to restore capital position under the extended credit facility loans driven by International Monetary Fund (IMF). To meet the requirement of the IMF, finance ministry decided to revise the recapitalisation of bank proposals. After that revision, banking division will distribute Tk. 4100 crore in the first phase against their capital shortfall of Tk. 8863 crore. The 4 SCBs also fails to meet the capital adequacy requirement. On the other hand, FCBs acquired 20.56 percent capital to its risk weighted assets in the year of 2012 which is the highest among all. However, FCBs achieved very strong capital adequacy percentages over the period. PCBs dropped from 11.49 percent in the year of 2011 to 11.38 percent in 2012 which is not satisfactory. This indicates that state owned commercial banks are in vulnerable situation compared to private and foreign commercial banks. At the end of the second quarter of 2013, non-performing loans of the banking sector reached from 8 percent in March to nearly 12 percent. Net Non-Performing Loans to total loans are higher in state owned commercial banks (SCBs) and
development financial institutions (DFIs). In 2011, net-NPLs were 0.34 and 16.95 percent in state owned commercial banks (SCBs) and development financial institutions (DFIs) respectively whereas in 2012, the percentages stood too high as 12.82 and 20.4 respectively. Overall net NPLs was 0.70
percent in 2011 which increased to 4.38 percent in 2012. Increasing of NPLs means the increasing of risk on investment. The new MPS might increase the NPLs and subsequently might be acute for the new banks