Feeble banking sector weighs on stocks

The gloomy picture of the banking sector led to a fall in the stock market over the past week amid rising coronavirus cases and deaths.

The DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), dropped 13.89 points to 6,066 compared to the week before.

Among major sectors, banks dropped the most, shedding 2.33 per cent in the week, according to the weekly analysis of LankaBangla Securities.

The main reason for the fall of banking stocks is that the sector's health deteriorated after its payment holiday ended last December, stock market analysts said.

Non-performing loans (NPLs) stood at Tk 95,085 crore in March, up 7.1 per cent from three months earlier and 2.8 per cent year-on-year, data from Bangladesh Bank shows. The payment holiday was introduced in late March last year to help businesses ride out the unprecedented Covid-19 crisis.

Defaulted loans accounted for 8.07 per cent of the outstanding loans of Tk 1,177,658 crore in the banking industry for that month. The ratio was 7.66 per cent in December.

Due to the higher rate of bad loans, the provision base of banks in Bangladesh deteriorated heavily in the first quarter of 2021. The shortfall ballooned more than 42 times to Tk 5,228 crore in March compared to Tk 123 crore three months before that, as per Bangladesh Bank data.

As the banking sector is a large paid-up capital-based sector, its impact on the index was higher.

"This is not a surprise for stock investors who saw the deterioration of the banking sector after the loan moratorium ended but it still disheartened them," said Shahidul Islam, CEO of VIPB Asset Management.

About the recent market movement, Islam said the sudden rise in insurance stocks or junk stocks are only because of speculation. "Investors need to be cautious about such companies that move fast," he added.

Investors are following a wait-and-see policy to invest now as the index has soared over 550 points already within two months despite the worsening pandemic situation, according to another analyst.

Sixty-three people have died from Covid-19 in 24 hours till 8:00am yesterday, according to the Directorate General of Health Services.

At least 3,840 new infections were recorded in the meantime and the current positivity rate is 15.44 per cent while the total positivity rate stands at 13.42 per cent.