Photo: Collected
All the 10 banks termed as "distressed" by the regulator are technically bankrupt and illiquid, according to the draft of the White Paper on State of Bangladesh Economy submitted to the Chief Adviser today. The report said a banking system can only be protected by its capital and liquidity in a distressed situation.
"We chose 10 distressed banks to dig into their solvency and liquidity. Of the 10 banks, two are state-owned banks that were mostly hit by scams in the last decade. The other eight are extremely weak shariah-based banks and conventional private commercial banks," it said.
The document mentioned that the names were not disclosed to preserve confidentiality. All the 10 banks are termed distressed by regulators, media and public. Combined loans and deposits of these 10 banks constitute 33% of the total loans and 32% of the total deposit of the banking sector.
It said the combined adjusted value of the asset was 52% of the reported value.
As a result, net worth is negative. The liquidity measured by the ratio of liquid assets to total tangible assets indicates 8 out of ten are illiquid.
It said all the banks are rated "Very Weak". Fundamentally, a bank's financial profile depends on Profitability, NPL and Capital as part of solvency and funding structure and liquid assets to meet depositors' demands.
"All get the worst rating. They are all extremely weak in assets and capital. Two banks have moderate liquid assets. The remaining 8 are nearly illiquid. Most of these banks have apparently defaulted in their obligations. They have been denied support from the market and their support from the central bank is exhausted. Currently they are taking cover under the BB's Guarantee Scheme to stay afloat."
It also said the precarities of these banks are public knowledge.
"The public know their reported finance and the stories day in day out on how much and how these banks invested in delinquent non-financial corporates, insolvent financial corporates, and a significant amount into entities that don't exist. Hence, the story of the massive difference between reality and the reported financials is no surprise."
Messenger/JRTarek
