Capital Adequacy Ratio (CAR), a percentage of a bank’s risk weighted credit exposure, has improved in the October-December quarter of last year thanks to the reduced default loan burden. 

The CAR of the banking sector rose to 11.35% in the quarter compared to 10.57% in the previous quarter (July-September), said a Bangladesh Bank press release issued yesterday. 

The standard CAR for banks has been set at 10% by Bangladesh Bank in accordance with the Basel-2 rules. 

The ratio went up as the provisioning requirement of the bank reduced during the quarter due to regularisation of huge default loans through taking advantages of relaxed policy of the loan rescheduling, said a senior executive of the central bank.

The provision shortfall of the banking sector came down to Tk796 crore during the last quarter of 2014 from the shortfall of Tk2,400 crore in the previous quarter. 

The bank maintained total capital of Tk71,754 crore in December compared to Tk64,933 crore in the previous quarter. 

The amount of reserved capital in the banking sector was Tk20,578 crore in the year 2008 following the Basel-1 rules. Later, the amount of reserved capital rose by 249% or Tk51,176 crore from the year 2008 to 2014 in line with increasing of required capital as per Basel-2 rules.

The growth rate of default loans has come down to single digit in the fourth quarter of last year from double digit that continued in the previous three quarters, thanks to the measures taken by the central bank.

The gross default loan rate stood at 9.69% in October-December quarter of the year 2014 from 11.60% in the previous quarter (July-September). 

The total default loan amount stood at Tk50,000 crore at the end of December, dropped by Tk7,000 crore  from Tk57,290 in September last year, according to Bangladesh Bank data. 

The rate of the state-owned banks came down to 22.23% in December quarter compared to 27.42% in September quarter. 

The state-owned banks conducted a massive drive to reduce the default loans in the following quarters under Bangladesh Bank pressure as these banks are mainly blamed for the high default rates. 

The default loan rate of the private banks has come down to 4.98% in December quarter from 6.34% in the previous quarter.