Appraisal of Bangladeshi Banks During Covid-19

TABLE OF CONTENTS
1 Introduction.........................................................................................................................3

1.1 Objectives....................................................................................................................3

1.2 Methodology................................................................................................................4

1.3 Limitations...................................................................................................................4

2 Literature Review...............................................................................................................5

3 Growth of Financial Sectors before the Pandemic.............................................................6

4 Mapping Covid-19 Impact on banks (Timeline)................................................................7

5 Risk Factors Implicated in the Banking Sector in the Time of Covid................................8

5.1 Rising Bad Debt..........................................................................................................8

5.1.1 What is Bad Debt.................................................................................................8

5.1.2 Increase of Bad Debt............................................................................................8

5.2 Decreasing Operating Profit........................................................................................9

5.2.1 What is Operating Profit......................................................................................9

5.2.2 Reduced operating profit....................................................................................10

5.2.3 Countrywide Lockdown and Reduced Economic Activity................................10

5.2.4 Liberal Monetary Policy....................................................................................10

5.2.5 Higher Provisioning and Loan Losses...............................................................10

5.2.6 Decreased Income from commission.................................................................11

5.2.7 Government Stimuli Package.............................................................................11

5.3 Reduced Individual Investment.................................................................................11

5.4 Employees affected by Covid-19 & hamper regular banking activities....................12

6 Methods of Recovery.......................................................................................................13

6.1 Support to SMEs and Other Businesses....................................................................13

6.2 Lowering Interest Rate..............................................................................................13

 Appraisal of Bangladeshi Banks During Covid-19

6.3 Digital Banking.........................................................................................................13

6.4 Healthcare Support....................................................................................................13

6.5 Stimulus Packages.....................................................................................................14

7 Review of Stimulus Packages on First Year of Covid.....................................................15

8 Findings............................................................................................................................16

9 Suggestion for Improvement............................................................................................17

10 Conclusion.....................................................................................................................19

References................................................................................................................................20

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 Appraisal of Bangladeshi Banks During Covid-19

1 INTRODUCTION
Only a strong financial structure can help a country's economy. Banks play an important role
in a country's financial development. They accumulate people's dormant reserve cash and
make them available for speculation. They also create new interest stores while permitting
credits and purchasing venture safeguards. They promote commerce both inside and beyond
the country by allowing and restricting trade bills. Banks also increase the mobility of capital.
Surprisingly, Bangladesh's financial structure has achieved a few notable achievements. It is
no longer limited to metropolitan areas but has spread to the most remote parts of the country.
One of the causes behind Bangladesh's development cycle is this.

Covid-19 has been found to have spread in Bangladesh in March 2020. On March 8, 2020,
the epidemiology institute (IEDCR) in this nation testified for the first time that there were
three known instances. It is spreading at a level never before seen, and the number of
infectious persons is growing exponentially. To rescue many people, the government
declared a state of emergency throughout the country. The Covid-19 pandemic poses a
financial danger to Bangladesh's banking industry. It was estimated by the Bangladesh Bank
that there are 59 banks in Bangladesh. There were six (06) state-owned banks, three (03)
scheduled banks, nine (09) foreign commercial banks, and forty-one (41) private banks. By
the end of November 2019, public and private banks had 10,467 bank branches around the
country. There were 5,398 branches in cities and 5,069 in rural regions. Most banks' branches
remain closed throughout the lockdown, with some opening with particular care but restricted
transactions. Non-performing loans (NPLs) are already a problem in Bangladesh's banking
industry, and they are projected to worsen as a result of the Covid epidemic. The guidelines
of the Bangladesh Bank are critical for launching bailout measures and managing liquidity
and loan recovery difficulties. The industry is facing difficulties in balancing deposits and
recovering falling loans.

The study's primary goal is to identify the issue caused by the devastating pandemic
Coronavirus. In Bangladesh, the banking business is a growing one. Banks are the country's
intermediate sector. We can mature the real profit or loss that occurred during this COVID-19
event in the banking industry as a result of the analysis.

1.1 OBJECTIVES
As already mentioned, the overall goal of this research is to determine the long-term impact
of Covid-19 on the banking sector in the nation. Besides that, the objectives of the study are:

1. Determine the impact of the Covid-19 disaster situation on the Bangladesh banking
sectors.
2. Determine the risk involved in Bangladesh's banking sector during a pandemic.
3. Describe how banks in Bangladesh confront significant uncertainty and distrust,
particularly when it comes to loan repayments from consumers when their business is
in disarray.

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4. When banks' bad loan rates are high, it decreases their lending ability and raises the
risks for shareholders.
5. Suggest some alternate courses of action with consequences for politics, as well as
some feasible solutions to the listed issue areas.

1.2 METHODOLOGY

1.3 LIMITATIONS
There were some limitations in our work and they are given below-

1. The complexity of the Banking Sector: We've acknowledged that the banking sector
is vast and encompasses numerous departments, policies, and systems. This
complexity can make it difficult to cover all aspects accurately in your thesis
comprehensively.
2. Limited Cooperation: Some bankers were not cooperative in providing information
and opinions for our research, which has further hindered our ability to gather
necessary data.
3. Time Constraints: Due to time limitations, we faced challenges in conducting an
extensive number of investigations. This has limited the depth and breadth of our
research.
4. Use of Secondary Data: Our work relies on secondary data sources, which can carry
limitations in terms of accuracy, relevance, and scope.

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 Appraisal of Bangladeshi Banks During Covid-19

2 LITERATURE REVIEW
Covid-19 has impacts on mental and physical health, and it threatens the idea of the global
economy and the global community. Even the world's life science is degrading in order to
fight the sickness. One of the studies shows that the banking sector has a relationship with the
economy, and its strength is dependent not only on its own strategy but also on the
development of all other sectors in the country[1]. Another study[2] found that Bangladeshi
banks face significant uncertainty and distrust, particularly about credit returns from clients
when their business activities are interrupted. This study [3] shows that Non-performing loans
that leave banks but do not return to their records are blamed for the reduction in monetary
fitness. When a bank's bad loan rate is high, it reduces the bank's ability to provide loans and
increases the risks for investors. This study [4] claimed that the majority of banks are in a
dangerous situation in terms of operational profits by the second half of 2020. It was
discovered in this study [5] that practically all banks had made a gradual increase in profits
compared to the previous year.[6] indicated that the banking industry is experiencing liquidity
and loan recovery issues. [7] has found that NPLs have been identified as a major source of
difficulty and challenge for the banking sector in Bangladesh. This study also explained
Coronavirus as an obstacle to the routine operations of Bangladesh's agro-economy. As a
result, the value of agricultural products is declining and going unsold. [8] identified
administrative softness, a lack of great governance, and a lack of political drive as important
causes for bank business dissatisfaction. Finally, farmers suffered significant losses. In this
instance, create pressure to repay the debt. [4]argued that NPLs were the primary cause of a
bank's insolvency.

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 Appraisal of Bangladeshi Banks During Covid-19

3 GROWTH OF FINANCIAL SECTORS BEFORE

THE PANDEMIC

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 Appraisal of Bangladeshi Banks During Covid-19

4 MAPPING COVID-19 IMPACT ON BANKS

(TIMELINE)

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 Appraisal of Bangladeshi Banks During Covid-19

5 RISK FACTORS IMPLICATED IN THE

BANKING SECTOR IN THE TIME OF COVID

Figure 5-1: Factors that Increase the Banking Sector's Fiscal Risk

5.1 RISING BAD DEBT

5.1.1 What is Bad Debt
Bad debt is the term used for any loans or outstanding balances that a business deems
uncollectible. For businesses that provide loans and credit to customers, bad debt is normal
and expected. There will likely be customers who can’t pay their debts back.

5.1.2 Increase of Bad Debt

According to Bangladesh Bank data at last December, the total volume of Tk. 10.18 trillion
were unsettled loans. From these loans Tk. 943.31 billion were classified NPLs.

But Covid 19 induced Lockdowns, reduced economic activity, and financial stress on
individuals and businesses led to an increase in non-performing loans (bad debt) in the
banking sector.

The proportion between gross NPLs and the total unsettled credits of the bank was at 9.32%
till December last 2019.

Bangladesh's banking sector has the second-highest ratio of non-performing loans (NPL)
among the countries in South Asia as lenders continue to face multiple challenges emanating
from scams, a lack of corporate governance and borrowers' growing reluctance to make
instalments regularly.

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Only Sri Lanka is ahead of Bangladesh.

And in the case of non-bank financial institutions (NBFIs), the ratio of NPL is the highest in
Bangladesh, with Sri Lanka coming second, according to a World Bank report, which was
released recently.

The WB said countries in South Asia with latent non-performing loans following forbearance
measures during the Covid-19 pandemic are more vulnerable to spillovers from volatile
global financial markets.

"Loan moratorium programmes during the pandemic have delayed the recognition of
distressed assets."

According to the report, distressed loans are concentrated in the sectors that have recovered
more slowly or were hit by adverse shocks

The central bank had a complete relaxation in loan repayments in 2020 due to the Covid-19
pandemic. In the next year, borrowers continued to enjoy some of the relaxation facilities.

Non-performing loans had increased and the recovery had decreased, because most
businesses had been passing tough days for a long time. Even SMEs are being defaulted as
they cannot import and operate their businesses smoothly," a Bangladesh Bank senior
official, wishing to remain unmanned, told TBS.

5.2 DECREASING OPERATING PROFIT

5.2.1 What is Operating Profit
Profit made from a company's main activities after deducting all costs associated with
running the business and before deducting taxes and interest.

Operating Profit=Total Revenue−Total Operating Expenses

Total Revenue includes various income sources such as interest income from loans and
investments, fees and commissions, and other sources of income directly related to the bank's
operations.

Total Operating Expenses include costs associated with running the bank's operations, such
as employee salaries and benefits, administrative expenses, rent, utilities, marketing, and
other overhead costs.

Operating profit provides insight into how well a bank is performing in its core activities,
excluding the impact of interest payments and taxes. It's an important metric for evaluating a
bank's operational efficiency and profitability.

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5.2.2 Reduced operating profit

The offensive of the awful and terrible Covid-19 epidemic is horribly upsetting the state-
owned (government) commercial banks in Bangladesh. There are 11 government owned
commercial banks, specialized banks and non-scheduled banks are losing a confounding Tk.
3,239 crore for interest suspension from all credits in April and continued pandemic. Banks’
loss will be more because instalment payment against paid loans has been postponed till June,
2020. For cash collections commissions, charges for rendering services of various banks have
also been dropped on a shocking amount. As transactions within the securities market have
been reduced to lockdown for this reason income from this sector has been reduced. The
division of financial institutions under the ministry of finance has anticipated that government
owned banks will face loss of Tk. 7, 717.15 crore by the covid-19 pandemic effect.

5.2.3 Countrywide Lockdown and Reduced Economic Activity

The pandemic led to widespread lockdowns, business closures, and reduced economic
activity. This resulted in lower demand for loans and financial services, impacting banks'
ability to generate interest income. Additionally, many borrowers faced financial difficulties,
leading to potential defaults and a rise in non-performing loans, which can erode a bank's
profitability.

5.2.4 Liberal Monetary Policy

In response to the economic challenges posed by the pandemic, central banks around the
world, including Bangladesh Bank, implemented monetary policy measures such as interest
rate cuts. While these measures were aimed at stimulating economic activity, they can
compress banks' net interest margins (the difference between the interest they earn from loans
and the interest they pay on deposits), thereby impacting profitability.

5.2.5 Higher Provisioning and Loan Losses

Banks had to increase their provisions for potential loan losses due to the uncertainty caused
by the pandemic. This impacted their profits as provisions are set aside to cover potential
defaults and reduce the impact on capital.

5.2.6 Decreased Income from commission

With restrictions on movement and business operations, banks saw a decline in fee-based
income sources such as transaction fees, service charges, and card-related fees.

5.2.7 Government Stimuli Package

Governments introduced various support programs, including loan moratoriums and stimulus
packages, which had an impact on banks' cash flows and operations.

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 Appraisal of Bangladeshi Banks During Covid-19

5.3 REDUCED INDIVIDUAL INVESTMENT

During the period of the Covid-19 pandemic, most of the people suffered plenty. They were
not able to perform their regular activities properly. Industry, educational institutions,
business organizations, and financial and non-financial organizations are partially or fully
closed during the lockdown period. After the lockdown period, all organizations don’t seem
to be performing their work simultaneously like before.

Industry, business, financial and non-financial organizations do their activities but they can’t
perform their activities fully fluently. The government provides the first priority to safeguard
individuals from this pandemic. On the idea of the affected rate, the realm has declared a
lockdown as a red zone. Within the new lockdown situation, all banking activities are
partially or fully enclosed in that area. This is often why people’s regular income was reduced
and why they use their savings just for maintaining their existence. Some people stay home
and keep their family safe first. The ultimate result is banks don’t get proper deposits from
their clients. During this situation, banks’ credit risks are increasing, banks face a capital
shortfall, decreasing individual investment, and aren’t performing their uninterrupted
economic activities. BRAC the largest NGO in Bangladesh conducted a survey on Covid-19
by its own income. The survey said that during the lockdown time, 95% of people throughout
the country suffered and lost their gross income[9].

When the scope of the investing options in the loans and advances (the main product of the
banking business) shrinks it is very natural that banks will intend to search for alternative
investment scopes and income sources. It is likely that banks will try to shift their investable
funds to alternative products or options to generate income or minimize inevitable losses.

The percentage share of government securities in total assets has increased for total of 37
banks in 2020 from 2019 which means that the majority of the banks have utterly tried to
shift their investments from loans and advances to possible alternative portfolios like
government securities. Since private sector loan demand has decreased drastically banking
sector's tendency to invest in government securities increased.

5.4 EMPLOYEES AFFECTED BY COVID-19 & HAMPER

REGULAR BANKING ACTIVITIES
Bank employees were severely affected by Covid-19 and this hamper regular banking
activities. The government of Bangladesh proclaimed universal holidays throughout the
country, for coronavirus from March 26, 2020. Primarily like all other countries government
of Bangladesh has also suffered from the lack of knowledge about the nature and technique
of tackling the spread of this virus. Therefore, imitating the Western world policies, a
rigorous shutdown is imposed all over the country instantly after the detection of this virus in
the human body within the country's territory. Thus, initially driven by the unknown panic
government was very strict to maintain sufficient physical distance among the citizens and
imposed harsh policies by law enforcement agencies to prevent the spread. This shutdown
prolonged for a long time all over 2020. Naturally, it has had a severe impact on the
economic activities of the country too.

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 Appraisal of Bangladeshi Banks During Covid-19

The health affairs of the Bangladesh Bank considered the bank personnel and declared
insurance for those who are infected with COVID-19 for functioning at the bank. There are
2,179 bank personnel in numerous branches of banks in this state who were infected by the
virus though most of them recovered. According to Bangladesh Bank statistics, 27,237
bankers of Commercial banks were affected by coronavirus and 143 bankers died from
covid-19 up to June 2021.

Bankers recognized that vast crowds in bank branches are the key reasons for the swelling
propensity of infections and deaths among bankers. For this reason, the infection and death
rate increased day by day.

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6 METHODS OF RECOVERY
Banks play a vital role in the transmission of monetary policy, one most important tools for
achieving economic growth. Moreover, banks provide funds to both the public and the
private, they also facilitate international trade and service payments, generating employment
opportunities and strengthening the rural economy. The Covid-19 pandemic affected badly on
various sectors of the Bangladesh economy. The manufacturing, agriculture, and service
sectors are mostly affected. Specifically, the readymade garments, real estate, tourism, health,
education, airlines, transport, and small and medium-sized enterprise (SME) sector has been
hugely affected. Basically, SMEs and the garment sector play a big role in generating
employment opportunities. When these sectors were hit by the pandemic, the employment
opportunity became less. For that reason, the Banking sector has taken several initiatives to
improve our economy.

6.1 SUPPORT TO SMES AND OTHER BUSINESSES

Due to the pandemic, SMEs were running out of fuel. The unemployment rate was
increasing. So, to help those SMEs, Bangladesh Bank, and the government introduced
different loan schemes. So that they can survive during the pandemic and create more
employment opportunities. Likewise, for other businesses, due to a lack of capital, some
businesses were unable to operate. So, these loan schemes and financial support helped them
to continue their operations and survive in the pandemic.

6.2 LOWERING INTEREST RATE

As a result of the pandemic, many people lost their jobs. For them, banks have decreased the
interest rates for loans, increased the Export Development Fund for manufacturer-exporters
of the country, relaxed loan classification policy, and introduced credit refinancing schemes.

6.3 DIGITAL BANKING

For contactless transactions and a smooth flow of money, the government and the central
bank prompts digital banking and mobile financial services. During that time, both the limit
and cost of different payment options have been relaxed. Also, the fintech channels were
instructed to make their transactions flexible through ATMs, and point of sales (POS).

6.4 HEALTHCARE SUPPORT

During the pandemic, different foreign drugs, medical kits, and devices were essential. So,
the banks were instructed by the government to increase the corporate social responsibility
(CSR) funds to increase so that health care can support the corona treatment. This improved
the healthcare system for facing the pandemic.

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6.5 STIMULUS PACKAGES

Bangladesh Bank and other financial sectors have jointly coordinated with the government
for financial policy and stimulus packages to overcome the pandemic situation. The output
was the government-declared stimulus packages of BDT 1.21 trillion for all sectors of the
economy. This ensured adequate liquidity and fund flows to the financial system for a faster
recovery of the economy.

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7 REVIEW OF STIMULUS PACKAGES ON

FIRST YEAR OF COVID
This section will provide a brief idea about the economic policies adopted to tackle the
negative impacts of the pandemic. More precisely, it will discuss the support packages in the
past year (from March 2020 to April 2021). The section will also bring forward the issues
that can reduce the effectiveness of the stimulus packages. The government has approved
economic incentives such as tax incentives, financial incentives, subsidies, and tax rebates
using fiscal, monetary, and hybrid tools. In addition, till April 2021, the government
announced 25 COVID-related support interventions amounting to about BDT 1250 billion
(approx. USD 14.7 billion). Comparing stimulus packages across countries is not an easy
task. However, according to the ADB, Bangladesh's stimuli size is the third largest in South
Asia (less than India and Pakistan), and the country is positioned in fifth place (behind
Bhutan, India, Pakistan, and Nepal) in terms of share of GDP (2019). Sri Lanka has the
lowest amount of stimulus support in terms of the share of GDP in South Asia.

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8 FINDINGS

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9 SUGGESTION FOR IMPROVEMENT

On behalf of banks, the pandemic is causing a wide range of crises, mainly due to rising
default rates. These will probably be even worse in emerging countries with poor financial
market architecture. Due to various macroeconomic shocks, bank borrowers, individuals, and
businesses are exposed to a high risk of default. The banking industry may experience sharp
increases in risk and default rates due to declining income and lower cash flow from its
borrowers due to the economic downturn and forced shutdown. The disaster will worsen for
borrowers reliant on exports to the international market as the global economy struggles to
survive the pandemic. The impact will also be severe for small businesses whose only
livelihood is to continue their day-to-day operations and generate sufficient income to
generate operational cash and cash equivalents to survive. Due to the pandemic, the profit
opportunities for humans and businesses have turned out to be limited increase, which could
cause them to spend their financial savings. In particular, humans who quit their jobs will
desperately try to live off their financial savings. This situation, if it persists for too long, will
lead to liquidity shortages and limit the lending potential of banks. As companies curtail their
activity and production, the demand for short- and long-term finance drops significantly with
no chance of recovery until the financial system recovers. This will damage the
straightforward commercial version of banking and selling technology and create a huge
selling surprise in international locations where credit dominates banks' commercial
portfolios, as is the case with growing lots and growing economies. The problem could be
exacerbated by the solvency limits to which banks are exposed to increased withdrawals due
to liquidity bottlenecks. In addition, income from sources of interest and other sources is
likely to decline due to the reduction in international trade, currency exchange, and
transactions. Interest income could fall further, as banks in many countries have already
started cutting fees and expenses, increasing credit card limits, taking mortgage holidays and
accessing fixed savings accounts to help their customers survive the pandemic. The outcome
of the effects discussed so far will be an increase in non-performing loans and a decrease in
the quality of bank assets. Such a persistent scenario would inevitably decrease the value of
banks' assets or goodwill. Banks' capital adequacy may also decline, as many banks may try
to use part of their Tier 1 or Tier 2 capital to support their operational and financial viability.
The effect of the coronavirus has caused a surprising change in the way of life and economy
in Bangladesh. The investigator believes that strategic measures can be taken to conquer this
situation. Here, the investigator seeks to recommend effective measures to improve the
economy for both short and long-term purposes. The suggestions are explained below: The
Banking sector needs to recover and perform a completely digitized fiscal practice. They
should make sure a protected, contactless, and united monetary platform for the business
deal. Mask-wearing should be made essential inside banks and offices, particularly for those
people who come in close to others. For that reason, no visitors should be permitted without
wearing a mask and the staff dealing with the visitors should also follow all along. Digital
and contactless reimbursement can be implemented in most deals. Not only this reduces the
risk of carrying the virus inside but also it will also reduce black money and corruption. A
crisscross sitting agreement should be implemented to evade sitting side-by-side. The
cubicles inside the office could also be rearranged. The staff could use conference calls
within the same room to avoid proximity. The administration should guarantee lower long-
term interest rates to reduce the liquidity crisis of many companies. Bangladesh’s
administration and central organizations should ensure efficient cloud-based homework to

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manage the financial system. There should be a decline in the government budget to offset
emergency spending for the pandemic.

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10 CONCLUSION

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