Banks’ profitability declined in the December-end quarter, with both their return on assets (ROA) and return on equity (ROE) decreasing in the period, according to Bangladesh Bank.

The central bank has recently published its quarterly report for October-December, where it said that the overall ROA and ROE of banking sector reduced to 0.59 per cent and 10.55 per cent respectively at the end of December 2023, compared to 0.62 per cent and 10.67 per cent respectively at the end of December 2022.

For private commercial banks, ROA and ROE declined to 0.62 per cent and 10.13 per cent at the end of the second quarter of FY24, down from 0.71 per cent and 11.04 per cent at the end of the same quarter of FY23. Bankers attributed this decline in profitability to high distressed assets, inflationary pressure, and other economic challenges.

The amount of non-performing loans soared to Tk 1.45 lakh crore in 2023 from Tk 1.20 lakh crore in 2022.

The BB report claimed that the banking sector was implementing a comprehensive plan to lower non-performing loans.

The banking sector experienced tight liquidity conditions in the second quarter of FY24, partially due to a contractionary monetary policy and consistent interventions by the BB in the foreign exchange market.

Excess liquidity decreased to Tk 1.63 lakh crore at the end of the second quarter of FY24 from Tk 1.64 lakh crore at the end of the first quarter of FY24.

The excess liquidity, represented by the surplus of the statutory liquidity ratio (SLR) as a percentage of the total demand and time liabilities (TDTL), experienced a modest decline to 8.9% at the end of the second quarter of FY24 from 9.2 per cent in the first quarter.

Given the higher inflationary environment, the central bank will continue monetary tightening in the rest of the quarters of FY24 until inflation reaches the desired level.

Although inflation softened marginally during October to December, it remained persistent above 9%, posing a concern. The BB maintained its restrictive monetary stance and adopted a unified exchange rate policy to manage inflationary pressures.

The government is also taking steps to remove supply constraints by addressing issues such as syndication, hoarding, and other unethical practices.

After adopting an interest rate corridor (IRC) system replacing the previous monetary aggregates targeting framework starting on July 1, 2023, the policy rate was revised upward twice.