The central bank has been increasing interest rates on loans in stages, saying it will control inflation for the welfare of the common man. The policy interest rate has been increased from 5 to 10 percent. The interest rate on bank loans has also increased from a maximum of 9 to about 16 percent. The International Monetary Fund (IMF) had suggested controlling inflation by increasing interest rates. Following the organization’s advice, the ‘cost of doing business’ or the cost of running a business has increased in the country. This has not brought inflation under control, but has increased further.
Although the IMF’s advice has not benefited the common man of the country, some banks in the country have reaped its benefits quite well. Data shows that the operating profits of almost all financially strong banks increased at an abnormal rate in 2024. The profit of some banks has grown by more than 100 percent.
Most of the banks in the country finalized their profit and loss accounts for the outgoing year yesterday. According to the information received, BRAC Bank earned an operating profit of about Tk 2,400 crore in 2024. In 2023, the bank’s profit was Tk 1,393 crore. Accordingly, BRAC Bank’s operating profit grew by 72.29 percent in the past year.
Pubali Bank PLC earned a record operating profit of Tk 2,375 crore last year. In 2023, it was Tk 1,566 crore. The bank’s operating profit grew by 51.66 percent. Like the two private banks, other strong banks in the country are also reporting significant growth in operating profit.
Pubali Bank’s Managing Director (MD) Mohammad Ali said that although there was a severe liquidity crisis in the country’s banking sector last year, Pubali did not have it. On the contrary, deposits in our bank increased by Tk 14,500 crore. From these deposits, we invested Tk 7,000 crore in bills and bonds. Tk 7,000 crore has been disbursed as loans. Pubali Bank’s import-export business has also grown by about 40 percent. These have played a role in the large growth in the bank’s operating profit.
When asked whether the country’s banks are enjoying the benefits of the increase in loan interest rates, the Pubali Bank MD said that this could be true for any other bank. Because even after the increase in interest rates, 70 percent of Pubali Bank’s loans have an interest rate below 12 percent. Loans with an interest rate of more than 14 percent will not even be 10 percent. We have not increased the interest rate on any customer’s loan in the last six months.
City Bank achieved a growth of 69.53 percent in 2024 compared to the previous year. In 2023, the operating profit of this first-generation private bank was Tk 1,349 crore. But last year, this profit increased to Tk 2,287 crore. This is the highest record of operating profit in the history of the bank.
Dutch-Bangla Bank also achieved a growth of 61.71 percent in operating profit. Last year, the bank earned an operating profit of Tk 2,285 crore. Whereas in 2023, Dutch-Bangla’s operating profit was Tk 1,413 crore.
According to relevant sources, in 2024, Bank Asia earned Tk 1,700 crore, Eastern Bank earned Tk 1,675 crore, Prime Bank earned Tk 1,500 crore, Mutual Trust Bank (MTB) earned Tk 1,110 crore, Shahjalal Islami Bank earned Tk 1,500 crore, Exim Bank earned Tk 975 crore, Premier Bank earned Tk 850 crore, One Bank earned Tk 830 crore, Mercantile Bank earned Tk 644 crore and Meghna Bank earned Tk 204 crore.
Among the banks, only Premier Bank’s operating profit has decreased slightly compared to the previous year. All the other banks have reported an increase in profit. However, this information on operating profit may increase or decrease slightly later. Because some banks could not finalize their accounts for 2024 yesterday. The possible profit information from these banks is mentioned here.
The profit that remains after deducting expenses from income is called operating profit. However, this is not the real profit of any bank. Provisions (safety reserves) against defaulted loans and other assets have to be preserved from operating profit and taxes have to be paid to the government. This profit after provisions and taxes is called the real or net profit of the bank.
While investigating the reasons for the abnormal growth in the profits of some banks, it was found that banks with more cash liquidity in hand did the best in terms of profit. In this case, the main investment sector of the banks was government treasury bills and bonds. Deposits collected at 5-6 percent interest have been invested in bills and bonds at 12-13 percent interest. The strong banks have withdrawn the deposits that came out of the banks whose boards were dissolved at low interest rates. In addition to bills and bonds, loans have been distributed at 15-16 percent interest from these deposits collected at low interest rates. Those concerned believe that this high spread (the difference between the interest rates of loans and deposits) has led to an abnormal growth in the operating profits of the strong banks.
City Bank’s Managing Director (MD) Masrur Arefin, who has achieved record operating profit, also made a similar observation. The banker, who is the vice chairman of the Association of Bankers Bangladesh (ABB), an organization of bank executives, said, “Good banks are supposed to make good profits. Because their deposit costs are comparatively low. Moreover, after the upper limit of loan interest rates was raised, their net interest income has increased. If you analyze, you will see that 60-70 percent of the total interest income of good banks comes from the lending sector. And about 20 percent from investments in government bills and bonds and the rest from keeping fixed deposits with other banks, etc. Along with this, about 25 percent of the total income of all banks in this group comes from fees, LC commissions and currency exchange income.” Masrur Arefin said, “The good banks of the country have now started earning one-fourth of their income from non-interest. That is, they are able to increase their income by charging a small fee-commission in return for providing various services to the people. Moving from an interest-based balance sheet to a fee-based balance sheet is truly modern banking. It is also true that this year, many banks have performed poorly, while relatively reputable banks have done even better.’
The country has been experiencing high inflation for almost three years. During the past two fiscal years, the country’s average inflation rate has been more than 9 percent. A review of BBS data shows that the inflation rate in the first month of the current 2024-25 fiscal year, i.e. July, was 11.66 percent. BBS claims that after the fall of the Sheikh Hasina government on August 5, the inflation rate fell to 10.49 percent in that month. Then, in September, it decreased slightly to 9.92 percent. However, the rate rose again in October and November. In October, the country’s average inflation rate was 10.87 percent. And in November, the country’s average inflation rate stood at 11.38 percent. Taking into account this information provided by the government, Bangladesh’s inflation is now the highest in South Asia.
Bangladesh Bank has been formulating a contractionary monetary policy for two fiscal years, saying it wants to control inflation. The policy interest rate (repo rate) has been increased from 5 to 10 percent to reduce the flow of money into the market. The interest rate on bank loans has also increased from a maximum of 9 to more than 16 percent. In other words, the target set by the central bank to rein in inflation by controlling demand has not been achieved. The prescription to control inflation by increasing interest rates is mainly from the International Monetary Fund (IMF). The issue of increasing interest rates was included in the conditions for obtaining loans from the multinational organization.
Traders say that due to the effect of increasing interest rates, the operating costs of all sectors, including industry and services, have increased. At the same time, the dollar exchange rate has increased. Due to this, it is not possible to reduce the prices of goods in the market. They have also appealed to Bangladesh Bank several times to reduce the interest rate to a tolerable level. But the central bank has not listened to them. Taking this opportunity, banks have increased their profit margins by increasing interest rates in stages.
Due to the contractionary monetary policy of the central bank, the interest rates on government treasury bills and bonds, along with bank loans, have also been quite high for the past two years. Since the beginning of this year, the interest rate on short-term treasury bills has also been 11 to 12 percent. Due to this, banks are showing more enthusiasm to lend to the government rather than lending to the private sector. The picture of the private sector being deprived of credit is also reflected in the data of Bangladesh Bank.
According to the organization, the growth of private sector credit has fallen to only 8.30 percent from October 2023 to October 2024, which is the lowest in the last 41 months.
Syed Mahbubur Rahman, MD of Mutual Trust Bank, believes that the role of bills and bonds is very high in increasing the operating profit of strong banks. He said, “Banks with sufficient liquidity in hand have made good profits by investing in treasury bills and bonds. Mutual Trust Bank has also invested about 12 thousand crore taka in bills and bonds. The investment in bills and bonds of some banks is two to three times more than ours. Due to this, the operating profit of those banks has increased.’
When asked whether the banks took advantage of the interest rate hike even though inflation was not brought under control, Syed Mahbubur Rahman said, ‘We see that inflation has not decreased even after the interest rate hike. That does not mean that the common people will not get any benefit. Bank dividends are distributed among the shareholders. A part of the dividends also plays a role in increasing the capital. Therefore, it cannot be said that the common people have been completely deprived.
Due to irregularities, corruption and a severe lack of good governance, the country’s banking sector has been continuously weakened for the past decade and a half. The worst period of this has been since 2020. Oligarchs created during the Sheikh Hasina government have looted several lakh crores of taka from the country’s banking sector. The indiscriminate looting has put the foundations of about two dozen banks in the country, including state-owned banks, in a fragile situation. After the fall of the Sheikh Hasina government on August 5, the central bank took the initiative to reform the country’s banking sector. After the new governor Dr. Ahsan H. Mansoor took office, the boards of 12 private sector banks in the country were dissolved. Changes came in the boards and management of state-owned banks. Due to the negative image, lack of trust and the impact of the dissolution of the boards, customers rushed to withdraw deposits from weak banks. However, most banks could not return the money according to the customers’ demands. In this situation, Bangladesh Bank is lending money to sustain the weak banks.
The managing director of a bank whose board of directors was dissolved said, “2024 was the most critical year in the history of the country’s banking sector. Because information about the looting of the last decade and a half came to light in that year. Even though there was no lack of sincerity, we were unable to return the money as per the demands of the customers. We have never seen such a bad situation in the history of the country’s banking sector. Customers withdrew money from our bank and deposited it in other banks, albeit at low interest rates. Due to this, the profits of those banks increased. And our disaster deepened. Since the accounting of defaulted loans could not be finalized, it was not possible to find out the profit situation of last year Due to irregularities, corruption and a severe lack of good governance, the country’s banking sector has been continuously weakened for the past decade and a half. The worst period of this has been since 2020. Oligarchs created during the Sheikh Hasina government have looted several lakh crores of taka from the country’s banking sector. The indiscriminate looting has put the foundations of about two dozen banks in the country, including state-owned banks, in a fragile situation. After the fall of the Sheikh Hasina government on August 5, the central bank took the initiative to reform the country’s banking sector. After the new governor Dr. Ahsan H. Mansoor took office, the boards of 12 private sector banks in the country were dissolved. Changes came in the boards and management of state-owned banks. Due to the negative image, lack of trust and the impact of the dissolution of the boards, customers rushed to withdraw deposits from weak banks. However, most banks could not return the money according to the customers’ demands. In this situation, Bangladesh Bank is lending money to sustain the weak banks.
The managing director of a bank whose board of directors was dissolved said, “2024 was the most critical year in the history of the country’s banking sector. Because information about the looting of the last decade and a half came to light in that year. Even though there was no lack of sincerity, we were unable to return the money as per the demands of the customers. We have never seen such a bad situation in the history of the country’s banking sector. Customers withdrew money from our bank and deposited it in other banks, albeit at low interest rates. Due to this, the profits of those banks increased. And our disaster deepened. Since the accounting of defaulted loans could not be finalized, it was not possible to find out the profit situation of last year.
