ASIAN FINANCIAL SERVICES ASSOCIATION

Reputable banks reap benefits of wider investment scope in 2023

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More than half of the listed banks posted a double-digit profit growth in 2023 as their net interest income surged up to 92 per cent, owing to the removal of the interest rate cap.

The foreign exchange gain was not as overwhelming during the year, but net interest income, the core source of income for banks, and earnings from government securities supported the lenders' impressive business growth in an adverse climate engendered by inflationary pressure.

The 36 banks' collective net profits stood around Tk 90.10 billion in 2023, a 57 per cent jump from the previous year, according to their audited financial statements.

Of the banks, 24 saw their profits increase by 3-121 per cent and eight registered lower profits.

However, ICB Islami Bank and National Bank remained in the red in 2023. Dhaka Bank and Shahjalal Islami Bank failed to elevate their earnings from the previous year, even with high lending rates.

Leading banks' net interest income grew by 12-92 per cent last year owing to wider interest spread since July, with the lending rate cap gone.

The lenders that wisely made good investments in Treasury bills and bonds reaped handsome returns from the securities alongside higher interest income.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks enjoyed better investment opportunities in 2023.

The gap between interest rates charged by banks on loans and interest rates paid by banks against deposits widened, leading to higher net interest income.

The Bangladesh Bank (BB) replaced the 9 per cent maximum lending rate with a reference rate to be regulated by the average rate of Treasury bills over a period of six months.

Hence, the maximum lending rate has been rising, aligned with the reference rate called SMART (six-month moving average rate of Treasury bills).

"Following the introduction of SMART, the yields on assets were higher than the costs of deposits," said Mr Rahman.

Mutual Trust Bank's net interest income surged 88 per cent year-on-year to Tk 7.25 billion in 2023, while profit jumped 21 per cent to Tk 2.86 billion.

Government securities paid banks interests at more than 11 per cent during the year. Moreover, liquidity support was also available from the central bank at the repo rate of 8 per cent against T-bills' receipts.

"That basically helped banks gain both ways," Mr Rahman said.

The lending rate went up to 13.55 per cent for April based on the SMART rate of 10.55 per cent and an interest margin of 3 per cent.

In the case of consumer loans, the lending rate is as high as 14.55 per cent as banks are allowed to add up to 4 per cent margin to the benchmark rate for such credits.

The net interest income of Dhaka Bank saw the highest jump of 92 per cent year-on-year to Tk 6.46 billion in 2023, but its consolidated net profit remained the same at Tk 1.67 billion over the previous year.

Emranul Huq, managing director & chief executive officer (CEO) of Dhaka Bank, said they had to make higher provisions against loans and advances, which was why net profit remained the same despite increased net interest income.

"We had to keep a provision of Tk 4.03 billion during the year as against Tk 3.04 billion in 2022."

BRAC Bank logged the highest profit of Tk 8.27 billion in 2023, a 35 per cent jump over the year before, having seen a 12 per cent year-on-year rise in interest income to Tk 20.55 billion during the year.

The profit growth was supported by small and medium enterprises (SME) and technology-based customer services, which added 0.36 million new customers in 2023.

BRAC Bank achieved a 34 per cent year-on-year deposit growth while the industry average is only 11 per cent. That reflects savers' faith in its business operations.

In the meantime, most banks' income from forex dealings was thin and brokerage commission dropped due to a sluggish stock market controlled by the price restriction.

City Bank experienced a 74 per cent plunge in foreign exchange income due to the dollar crisis in 2023, compared to 2022. However, it managed to boost annual profit by 33 per cent to Tk 6.38 billion.

"This was attributed to the bank's ability to control its cost of deposits, expand its performing loan book, and earn substantially from investments in government securities," said the bank in a statement.

Uttara Bank achieved a 16 per cent higher net interest income in 2023, compared to the year before, which helped its profit grow by 17 per cent year-on-year to Tk 3.17 billion in 2023.

"We have a good reputation and our cost of fund is low," said Md Golam Mustafa, chief financial officer of Uttara Bank, adding that the lender had an insignificant amount of bad loans and so the provision burden was low.

Bank stocks' performance

Despite bright financial outcomes, most bank stocks have failed to draw investors.

Currently, stocks of 11 banks, out of 36, are trading at below the face value of Tk 10 each share.

ICB Islamic Bank closed at Tk 3.80 per share on the Dhaka Stock Exchange on Sunday. Its losses expanded by 124 per cent year-on-year to Tk 560 million in 2023.

Exim Bank, AB Bank, Global Islami Bank, First Security Islami Bank, ICB Islamic Bank, National Bank, ONE Bank, SBAC Bank, Standard Bank, and Union Bank also traded below the face value on Sunday.

The low stock prices brought the overall banking sector's price to earnings ratio (PE) to 6.80 on Sunday, lowest among all sectors. The overall market's P/E ratio is 11, indicating how cheap bank stocks are compared to other companies.

Dividend yield, which means how much an investor earns in dividends for a year against every taka invested in a security, of four banks -- Premier Bank, EXIM Bank, NRBC Bank, and NCC Bank -- is more than 10 per cent, as per the latest audited financial statements, with Sunday's closing price taken into consideration.

Banks' distribution of profits in the form of cash dividends is the only return on investments considered in the calculations.

Dutch-Bank's dividend yield is the lowest at 2.75 per cent while Premier Bank's dividend yield is the highest at 10.50 per cent

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