Expenditure-Income Ratio (EIR) by Type of Banks in South Asia

The gap between required provision and the provisionmaintained has been experiencing a negative trend over the years since 2005, except in 2009 and 2011. In 2012, required provision was Tk.24239 crore against the provision maintained Tk. 18977 crore results in shortfall was Tk. 5262 crore whereas
in 2011, there was surplus in case of loan loss provisioning. A business as usual projection says that in 2013, the shortfall of required provision and the provision maintained might increase which is an
alarming situation for the bank’s profitability. Return on Assets (ROA) indicates the productivity of the assets i.e. how much income is earned from per unit of assets. According to Basel- accord, ROA should be more than 1 percent. On the other hand, return on Equity (ROE) is another important measure of earning and profitability determination which indicates net income after tax to total equity. State
owned commercial banks (SCBs) have achieved nearly zero percent of ROA over the period of 2007 to 2012. The scenario is much worst in case of Development Financial Institutions (DFIs) while most of the time ROA was less than 1 percent in 2010 to 2012. In 2012, overall ROA in the banking sector was
0.60 percent where as it was 1.3 percent in 2011. It these trends continue then overall ROA in the banking sector might decrease to 0.55 percent in 2013. Insignificant profit during this period has occurred due to the worst ratio of ROA scenario in SCBs and DFIs. The position of foreign commercial banks (FCBs) was strong enough over the whole period. The DFIs' situation is not found better due to the operating loss incurred by Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB). Higher value of ROE is an indication of high productivity of equity. Overall ROE in banking sector was 14.3 percent in 2011 which reduced by 6.5 percentage points in 2012. Projection says that if the current trend of ROE in the banking sector persists, then ROE might decrease to 6.80 in 2013. Reduction
of ROE ratio in banking sector indicates that share holder profits are declining gradually.
In 2010, the position of state owned commercial banks (SCBs) was the worst among the other types of banks and ROE of state owned commercial banks was -11.87 percent. The negative value means huge loss in the business of SCBs. Private commercial banks (PCBs) possessed a good progress of 10.17
percent in 2012. On the other hand, foreign commercial banks (FCBs) hold a consistent level of ROE which was 17.29 percent in 2012. DFIs were also in a worse situation in 2010, probably
due to huge provision shortfall and net loss in that year.