The banking sector is suffering the consequences of the bad image created by a small group

What is worrying is that 15 of the 36 listed banks are trading below the face value of Tk 10 per share, but what is more worrying is that some of them still have P/E ratios higher than the industry average.

For example, AB Bank closed the session on the Dhaka Stock Exchange (DSE) on Thursday at Tk 7.4 per share, well below its face value. Its price-to-earnings (P/E) ratio, which measures a company’s current share price relative to its earnings per share, is 15.42 based on earnings for the first quarter of this year, while the banking sector’s P/E ratio is 9.34.

Even at a price below par, AB Bank shares are considered overvalued. Investors should not expect a good return on their investment in the shares due to the company’s poor financial results.

There is also the opposite picture: a bank that has been keeping its profits up for years by reducing non-performing loans (NPLs) is also trading below par on the stock exchanges. Exim Bank is one of them, with NPLs at 3.47% of its total loans and its share price closing at Tk 8.3 per share on Thursday.

This is because the banking sector as a whole has a bad reputation due to numerous frauds and financial scams and rising NPL levels.

“The problem is that the government is claiming that there are sick banks but is not disclosing their names. So people are collecting information from various sources and taking decisions based on it,” said Saiful Islam, president of DSE Brokers Association, Bangladesh (DBA).

“I believe the government should reveal the names of the bad banks.”

NPL is a very important indicator of a bank’s performance.

According to Md Shakil Rizvi, Managing Director of Shakil Rizvi Stock, it is extremely important to check whether the bank has complied with the requirement to create provisions for bad loans in its financial statements.

According to BB, in December 2023, every 9 out of 100 loans granted were bad loans.

As a result, many lending institutions increasingly rely on central bank loans to maintain operations.

On June 13, the last working day before Eid-ul-Azha, banks lent a record amount of Tk 224.06 billion. This trend continued even after Eid as banks lent a total of Tk 150.51 billion on June 27 and Tk 164.84 billion on June 30.

Surplus cash in banks declined to Tk 84.09 billion in April from Tk 199.66 billion in December 2023, corresponding to Tk 320.59 billion in December 2021, according to Bangladesh Bank data.

According to BB, as of April 30, 90.47 percent of issued securities were held outside banks.

Moreover, continued inflationary pressures have eroded the purchasing power of the currency, prompting depositors to withdraw cash.

Meanwhile, the sale of dollars from reserves by the Bangladesh Bank, increased investment in Treasury bills and cash outflow from the banking system deepened the crisis.

“People don’t want to keep their money in banks. They’re afraid they won’t get their money back. Investing in stocks is riskier than keeping deposits. That’s why investors have turned away from bank stocks,” said a top asset manager in the country, who declined to be named.

However, more than half of listed banks reported double-digit profit growth in 2023 as their net interest income rose following the lifting of the interest rate cap.

However, many of them perform poorly on the stock exchanges.

Dutch-Bangla Bank’s profit rose 42 percent year-on-year to Tk 8.02 billion in 2023, the highest since its listing in 2001, driven by strong interest income. BRAC Bank posted the highest profit of Tk 8.27 billion in 2023 among all listed banks, registering a 35 percent increase in income from a year earlier. City Bank’s consolidated profit stood at Tk 6.38 billion in 2023, up 33.5 percent from a year earlier.

Mr. Rizvi said that there was a time when the banking sector was the leader in turnover on the stock exchange.

“That’s no longer the case. Investors believe that the financial health of banks is not good. They are reluctant to invest in bank stocks. But not all banks are bad. Maybe 10 to 12 percent of banks have become sick, while the entire sector is suffering the effects of the crisis.”

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