Banks’ return on assets (ROA) narrowed by 57% in 2018, as a result of the high amount of non-performing loans (NPLs) in the sector.
ROA is a profitability ratio that provides how much profit a company is able to generate from its assets. The higher the number, the more efficient a company’s management is at managing its balance sheet to generate profits.
In 2018, net profit of banks stood at only Tk0.30 against assets worth Tk100, down from Tk0.70 per Tk100 of assets in 2017, according to the Bangladesh Bank.
In 2018, state-owned commercial banks lost Tk1.30 against assets worth Tk100. In 2017, these banks had made profits of Tk0.20 against assets worth Tk100.
On the other hand, private commercial banks made net profit of Tk0.80 per Tk100 of assets last year.
However, in 2017, banks had earned a higher net profit of Tk0.90 per Tk100 of assets, according to central bank data.
Speaking to the Dhaka Tribune, a senior Bangladesh Bank official, said the reason for this situation is because banks’ net profits have been decreasing because of NPLs.
The non-performing loans (NPLs) of banks rose by Tk19,608cr in December 2018, compared to the same period in 2017.
The amount stood at Tk93,911.40crore or 10.30% of total disbursed loans as of December 2018.
Former Bangladesh Bank governor Salehuddin Ahmed said it is the prime responsibility of banks to justify the eligibility of a company that applies for a loan, as well as its capacity to repay.
“However, this is absent in practice as corrupt bankers sometimes approve loans in violation of rules and regulations,” he explained, adding that this was why NPLs had reached such an alarming number.