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Profits for nationalised banks decline

By Nazmul Ashraf
Profits were down for Nationalised Commercial Banks (NCBs) in 1990 because of additional loss provisions against bad. doubtful and substandard loans under Financial Sector Reforms (FSR). banking sources said.
Final estimates about the profits are not available yet. The banks have not received so far any compensation package. promised under the FSR. from Bangladesh Bank.
The FSR. Introduced In early 1990. envisaged recapitalisation of the NCBs up to five per cent of their total deposits. The interest subsidies, stipulated under the reforms, for
loan operations in priority sectors have also not been made available to them. This has made it difficult to make any realistic assessment about their total earnings and re celpts tn 1990. And without this, they are also unable to make any final assessment about profits for the year.
Even if the banks receive additional funding support by way of interest-bearing bonds for recapitalisation, and cash subsidies for priority lending operations at concessional rates of interest, the profits of the NBCs would be slashed in a major way in 1990, according to some senior bankers. The
increased amount of funds which the banks kept with Bangladesh Bank under minimum statutory cash reserve requirement in 1990 cut their profits. The reserve requirement was raised to 10 per cent in 1990 from earlier five Kr cent of total deposits. The
nks had to forgo a substantial amount of earnings on account of this, because this they could not use the funds for normal credit operations. Reserves kept with Bangladesh Bank under minimum statutory requirement have provisions for interest earnings at eight per cent, and that too. upto 50 per cent of the total amount.
Besides, the banks under the FSR cannot show, in their accounts, any interest receipts on sub-standard loans' after their classification under the new arrangement. The new flexible interest rate structure has also entailed more interest payments on savings deposits. While the expenditures rose In 1990. Incomes had fallen. This would lead to low profits.
Banking circles noted that most of the problems of the banks were because of partial implementation of the FSR. If the FSR is made fully operational along with compensation package provided for the sit-
uation may change for the better, they observed.
The financial strains on the NCBs following the partial implementation of reforms pro gramme can be illustrated by the situation in one particular bank.
The NCB in particular had to make provisions for bad. doubtful and sub-standard credits by an additional am ount of Taka 360 crores in 1990. The new arrangements under the FSR not only lowered its profit but also involved additional funds of over Taka 300 crores for loan loss provisions. The bank earned profits over Taka 23 crores in 1989
But its*profits for 1990 could not finally assessed due to non receipt of any compensation package from Bangladesh Bank.
The bank's bad debts in creased by more than .Taka. 100 crores while doubtful and sub-standard loans by over Taka 100 crores and Taka 150 crores respectively In 1990 alone.
It incured a loss of about Taka nine crores as forgone interest earnings because it had to keep about Taka 300 crores with Bangladesh Bank under minimum statutory cash reserve requirement.