Banks thrive on fees but core business suffers

Most of the listed banks in Bangladesh logged higher profits in the January to September period of 2022 on the back of increased incomes from commissions and fees whereas their core business suffered from the slowdown in the economy. 

Despite a lower turnover in the stock market owing to the Russia-Ukraine war-induced uncertainty, banks collectively posted more than 72 per cent rise in incomes through commission and fees after their revenue rose for the surge in the US dollar price against the taka.

The local foreign exchange market turned volatile after the shortage of the American greenback hit the country following the unprecedented jump in import bills fuelled by the conflict.

Of the 31 banks listed on the Dhaka Stock Exchange (DSE), 18 logged higher profits and 11 saw lower profits in the first nine months this year. One incurred loss.

Whether they made higher profits or not, 29 lenders clocked higher incomes from their commission and fee business. The income from the segment doubled for 11 banks and rocketed more than 50 per cent for 13 others.

"Due to the interest rate cap of 9 per cent on loans, banks' interest income was low," said Anis A Khan, a former chairman of the Association of Bankers, Bangladesh.

Loans and advance growth of the banking sector stood at 14.3 per cent as of June of 2022, according to the central bank.

As per a central bank instruction aimed at supporting the economy, accelerating industrialisation and keeping the cost of funds lower for borrowers, banks have maintained the 9 per cent interest rate on all loans except for credit cards since April 2020.

Their receipts from commissions and fees under the brokerage and exchange businesses rose in the first six months of 2022 since the opening of letters of credit (LCs) was higher.

As the dollar shortage deepened and the government tightened imports to save the foreign currency reserves, the LC opening fell in the third quarter of 2022.

"But banks earned a huge amount from their foreign exchange business," said Khan.

In the segment, banks get fees and commissions from LC opening and securities trading and services and foreign currency trading.

The listed banks earned Tk 9,634 crore in the segment from January to September, way higher from Tk 5,581 crore a year earlier, according to their financial reports.

The higher income came although daily average turnover on the DSE fell more than 33 per cent to Tk 1,042 crore in the nine months to September. It was Tk 1,561 crore in the same period a year prior, DSE data showed.

Though the commission, brokerage and exchange income of banks rose, the net interest income, the biggest source of revenue, grew at a slower pace, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

"This is not a good sign for the banking sector."

Banks' combined net interest income rose 5.6 per cent year-on-year to Tk 14,564 crore in the first nine months of 2022. The collective net interest income rose 33 per cent to Tk 13,796 crore.

The collective net profits of the banks, however, dropped 1.6 per cent to Tk 6,783 crore.

Rahman said banks' bond-holding reduced in the nine-month period as many lenders tried to keep a higher liquidity. "As a result, their investment income dropped."

Investment income fell 1.8 per cent to Tk 10,254 crore in January-September.

Banks' revenue from the stock market has been on a downward trend in the current year, pushing the income of some banks from the stock-related business down.

The DSEX, the benchmark index of the premier bourse in Bangladesh, lost 485 points, or 6.93 per cent, between January and September, DSE data showed. It had surged 1,711 points in the identical period in 2021.

"As foreign trade rose, the income from commissions and fees rose," said MTB's Rahman.

Mutual Trust Bank witnessed the highest growth in the commission, brokerage and exchange income segment as it registered a 253 per cent year-on-year growth to generate Tk 592 crore.

The highest income from commission, brokerage and exchange was logged by Brac Bank after it posted a 49 per cent growth to earn Tk 816 crore.

Premier Bank's income from the segment surged 145 per cent to Tk 669 crore and United Commercial Bank's revenue rose 50 per cent to Tk 666 crore.

Pubali Bank logged the highest profit among all the listed banks, netting Tk 525 crore in January-September.

Islami Bank came second with Tk 437 crore in profit.

Dutch-Bangla Bank generated Tk 399 crore in profit, Eastern Bank took home Tk 386 crore, and Brac Bank earned Tk 378 crore in profit.

By The Daily Star