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February 22, 2008 |
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AGRANI BANK: Fitch Affirms E Individual Rating Fitch Ratings has affirmed the Individual and Support ratings of Bangladesh's Sonali Bank, Janata Bank Agrani Bank and Rupali Bank at 'E' and '5', respectively. The ratings of these government-owned banks, with a significant outreach and market share in Bangladesh, continue to be at the lowest-end of the scale due to their negative capitalisation, poor profitability and the sovereign's fiscal weakness, which makes support unreliable. Given the structural problems pertaining to governance, management and the lack of capital, all four banks showed negligible growth in 2006 thereby losing market share to private banks. Fitch expects this deterioration of market share to continue unless a clear roadmap for strengthening capital and resolving legacy NPLs emerges. The stated intent of the earlier government to privatise these banks under a program supported by multilateral agencies has been put on hold after the highest bidder for RB, the only bank for which bids were called, slashed its earlier offer quite significantly. AB has however seen a positive move with the appointment of a new senior management (including the CEO) by PricewaterhouseCoopers under a scheme sponsored by major multilateral institutions. The net interest margin for SB, RB and JB declined further as they were unable to pass on higher funding costs in a rising interest rate environment. AB, however, showed some improvement in profitability under its new management by moving into higher margin segments and by increasing its low cost deposit base. Fitch however expects profitability to remain depressed in the medium term given the continued use of these banks as instruments-of-state- policy in an environment that is becoming increasingly challenging given the recent political and economic turmoil, coupled with the increase in competition from the private sector. While NPLs have come down since the early 2000s, they remain high as collateral erosion of legacy NPLs has impeded recoveries and write-offs have not been possible due to a lack of capital. Recent events like floods, labour problems in the garment industry, continued government-directed lending (more than 50% of portfolios) have led to an upswing in NPLs in 2007. This trend could continue in the financial year 2008 as the country grapples with these problems. Either majority-owned or fully-owned by the government, which retains management control, these banks have an extensive outreach to the remotest parts of Bangladesh and provide commercial banking services. SB is the largest bank in the country; JB is the second-largest while AB is the fourth- largest. As the largest bank in Bangladesh (about 15% of system deposits), SB acts as a clearing house outside Dhaka and Chittagong and balances with it carry zero risk-weight for capital adequacy purposes. JB has a strong franchise in trade finance while AB and RB are focused mostly on the Dhaka region. |
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