Bank profits to go down in 2009

The Daily Star

Banks are likely to pass through a tough year in retaining the profitability and productivity because of the falling domestic demand and commodity prices, top bankers fear.

They believe lending rate cuts and loan rescheduling without down payment would hurt bank profits significantly.

The banking industry, comprising 48 banks, heavily depends on the garments and spinning sectors for investment. Some 4,500 woven, 1,700 knitwear and about 350 spinners sprang up with the help of banks.

A severe slump in global economy and consumption has caused an investment- sluggishness in these industrial areas in the country. Even the existing factories do not go for any expansion, according to senior bank officials.

“We are not getting any new investment proposal this year as we had received previously,” said Kaiser A Chowdhury, president and managing director of AB Bank.

AB Bank, a 27 years old bank, had posted a 6 percent growth in advances in the first quarter of 2009.

United Commercial Bank's advance growth was within 3 percent. This bank has been in operation for the last 26 years.

“It will be extremely challenging this year to retain even the profit we earned in 2008, as the credit demand diminishes,” said Chowdhury.

Of the 48 banks, 30 are private commercial banks, nine foreign and nine state banks. Except five state-run specialised banks, all these banks were making profits riding on booming garments and spinning sectors and a rapid spike in the prices of commodities in 2007 and 2008.

Till the third quarter of 2008, the banking sector earned huge money from charges and commissions by financing commodity imports.

Meanwhile, bank share prices have already considerably come down. Market capitalisation of banking stocks was Tk 35,453.12 crore at the end of March 2008, which came down to Tk 27,155.16 crore as of March 23 this year.

Financial disclosures and dividends announced for 2008 performance have also failed to attract small stock investors.

The central bank has recently pressurised scheduled banks to cut the lending rate to maximum 13 percent, which the bankers believe would erode the profits significantly.

“A bank like us will profit around Tk 70 crore less this year because of such rate cut,” said Mahmud Sattar, managing director of The City Bank.

“Credit growth is very slow less than 3 percent so far in 2009,” said Shahjahan Bhuiyan, managing g director of United Commercial Bank.

Bhuiyan said: “Economy is in a stagnant position. We are getting no new loan proposal.”

He attributed the lesser profit this year to the rise in the cost of fund, less income from trade financing and lower business demand.

“Banks will be under a severe pressure this year. No doubt, this year's income will go down,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

“We have to look for new avenues for investments, otherwise sustaining the business will be tough this year,” said Kaiser Chowdhury of AB Bank.