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PCBs’ operating profit sharply declines in Q3

 

 

The operating profit of the country’s private commercial banks (PCBs) declined sharply in the third quarter as the lenders were hit by plunging stocks, a hike in cost of fund and lower return on investment.

Fifteen PCBs, out of 30, earned around Tk 13.74 billion, in aggregate, as operating profit during the July-September period of 2011 as against Tk 31.18 billion of the first two quarters of this calendar year, sources in the banking sector said.

The figures indicate that the operating profits of PCBs declined by Tk 1.85 billion, taking the average figure of earlier two quarters, in the third quarter compared to the first six months of the current calendar year.

The operating profit, however, does not indicate the actual financial position of a bank. The banks have to leave aside funds for provisioning the bad debts and taxes payable to the government.

“Higher interest rates on deposit have pushed up our cost of fund in the third quarter of this current calendar year,” a senior official of a leading PCB told the FE while explaining the declining trend of their operating profits in the recent months.

The cost of fund of the PCBs rose to 10.74 per cent in August this year from 9.21 per cent in the corresponding period of the previous calendar year while the return on investment declined to 14.84 per cent from 14.45 per cent, the private banker added.

Taking note of the views and opinions of private bankers about the state of their situation, a central banker said interest rate spread in the country’s banking sector declined in August last as the banks had to raise their deposit rates to help ease the growing pressure on their liquidity but kept the lending rate almost unchanged.

 

The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.28 per cent in August 2011 from 4.65 per cent in the previous month, according to the central bank statistics.

The weighted average lending rate stood at 13.61 per cent in August while that of deposit rate was 9.33 per cent, the BB data showed.

The PCB official also said return on investment of the PCBs increased slightly during the period due mainly to nominal or negative growth in non-banking businesses including capital market investments.

“A section of PCBs are counting losses continuously because of declining trend in share prices in the recent months,” the private banker said, adding that the banks will post their losses on share markets in their expenditure accounts by the end of this calendar year.

The capital market investment will be calculated using marking to market system, in line with the central bank directives, they added.

Marking to market or mark to market system is a process of calculation to determine the market value of an asset.

Total investment in shares by all 47 commercial banks were more than Tk 106 billion as on June 30 this year, according to the central bank statistics.

The country’s stock market that has lost substantially so far this calendar year, in terms of market capitalisation of all listed issues, leading to a sharp drop in its index in the recent months.

The benchmark index of Dhaka Stock Exchange (DSE), the country’s prime bourse, generally known as DGEN, came down to 5568.36 point Thursday from its highest 8918.51 on December 05 last, the DSE data showed.

The PCBs also face losses from their investment in the government-approved securities because of lower yield on the treasury bills and bonds than their cost of funds.

“The average yield on the government securities stood at 8.76 per cent which is lower than our cost of funds,” another private banker said, adding that 12 primary dealer banks have invested worth around Tk 200 billion in the government securities.

Currently, three treasury bills (T-bills) and four bonds are being transacted through auctions to adjust the government borrowing from the banking system.

The T-bills have 91-day, 182-day and 364-day maturity periods.

On the other hand, four government bonds — five-year, 10-year, 15-year and 20-year — are being traded on the market.

The central bank earlier selected 15 PDs — 12 banks and three non-banking financial institutions (NBFIs) — to deal with government securities in the secondary market.

Source: Fianancial express

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