National Bank Ltd (NBL) that raked in Tk 550 crore in annual profit a few years ago incurred unprecedented losses of Tk 357 crore in January-September of 2022 due to lower interest incomes and higher non-performing loans.
The about-face in fortunes raised eyebrows since NBL was the lone bank to have been in the red during the nine-month period among all the listed lenders that disclosed data on the Dhaka Stock Exchange.
For all latest news, follow The Daily Star's Google News channel. In 2016, the first-generation private commercial bank logged a profit of Tk 567 crore. But its financial performance started to erode before plunging to a loss in January-September. It even made a profit of Tk 134 crore in the identical period a year earlier.
The losses in January-September of 2022 were driven by a massive drop in interest incomes. In the nine months, the income from the segment plunged by Tk 579 crore, or 25 per cent, to Tk 1,736 crore.
As a result, the net interest income, the difference between interest income from loans and the interest paid on deposits, stood at Tk 346 crore in the negative in the first three quarters, versus Tk 137 crore in the same period a year earlier.
"National Bank's business was hit as there was a restriction from the central bank on giving out fresh loans so that the advance deposit ratio comes down," said Md Mehmood Husain, managing director and chief executive officer of the bank.
In Bangladesh, conventional banks must maintain an 87 per cent ADR (advance deposit ratio), meaning they can lend Tk 87 for every Tk 100 mobilised in the form of deposits.
The Bangladesh Bank ordered NBL in April last year that it can't make fresh loans before bringing down the ADR below the regulatory limit. The bank had maintained more than 90 per cent ADR for a long time.
NBL is allowed to disburse only agricultural and micro, cottage and small loans.
"So, our revenue dropped," Husain said.
Another reason for the loss was its loan to Maisha Group. The loan has turned into NPL after its owner died and his successor struggled to run the business.
The loan amounting to the group is around Tk 3,200 crore, according to Husain.
The bank's default loan stood at Tk 11,336 crore as of September, accounting for 27 per cent of the total loans, central bank data showed.
Due to the liquidity crunch in the market, apart from the dragging impact of the coronavirus pandemic, borrowers could not pay instalments on time. As a result, the loans have become classified, said NBL in its financial report.
The interest on such loans and advances could not be taken to income. Consequently, the profitability and earnings per share (EPS) decreased significantly compared to the previous period, it added.
The EPS stood at Tk 1.11 in the negative in the three quarters, down from Tk 0.42 in the same period of 2021.
As a first-generation bank that was set up in 1983, NBL is supposed to attract deposits at a lower cost. But the cost has been as high as a new bank, said Husain, adding that the bank is targeting to change the deposit mix and attract more funds.
One of the factors for the high cost of deposits could be the lack of confidence of depositors in the bank after it made headlines for all the wrong reasons recently.
For example, the BB in April this year banned 10 members of Sikder family and two officials of Sikder Group from using international credit cards for two years as they took loans from NBL beyond their credit card limit grossly violating rules. The individuals include directors of the bank.
In January, the central bank fined NBL Tk 55 lakh as it had tried to hide the loan-related information of the cardholders.
Instead of chasing institutions for deposits, the bank has targeted to collect funds from the mass public through its branches in the rural areas, said Husain.
"Our top priority is to accelerate the loan recovery rate and keep the operating costs under control so that we can return to profit."
NBL's investment income also dropped in the nine months to September. It fell by around 17 per cent to Tk 408 crore.
The net asset value per share declined to Tk 14.82, which was Tk 6.13 in December 2021.
In 2010, the bank distributed 95 per cent in stock dividends to shareholders. Now it is struggling to provide any dividends, so it was downgraded to the B category share on the premier bourse of Bangladesh, said Abdul Mannan, an investor since 1998.
"A company's profit may fall for a period. But National Bank's performance has been eroding for years."
In 2021, it failed to provide any dividends, DSE data showed.
"So, the Bangladesh Bank should look into it. The Bangladesh Securities and Exchange Commission should also look into it as a securities regulator," said the investor.
NBL shares have been trading below the face value of Tk 10 at least for the past two years and closed at Tk 8.30 on Thursday.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, thinks NBL's case could be a lesson for other banks that a profitable bank may sink to losses if it does not examine loan proposals properly before sanctioning them and monitor them after it is disbursed.
"Banks should lend considering the commercial viability of companies or projects," she said.
Owing to the ongoing crisis amid the Russia-Ukraine war, NPLs may go up, so banks should be watchful, the economist said.
"Otherwise, the depositors and investors will suffer."
