Staff Reporter :
Seven banks, including three state-run banks, witnessed a provision shortfall of Tk24, 189 crore at the end of December 2023, indicating their worsening financial health caused by loan irregularities, surge of NPLs, and lack of governance.
The high provision shortfall is only the tip of the iceberg pointing the current huddles the sector is facing.
Agrani Bank, BASIC Bank, Rupali Bank, Probashi Kallyan Bank National Bank, Bangladesh Commerce Bank, and Standard Bank are in this list, according to the Bangladesh Bank.
Three state-owned commercial banks (SCBs) combindly had a shortfall of Tk 11,808 crore, while four private banks had a deficit of Tk 12,378 crore in provision, according to the latest Bangladesh Bank (BB) data.
Experts pointed that the significant shortfall was driven by a substantial rise in non-performing loans over the past year along with demise of governance, eroding the bank’s financial stability.
Likewise, the overall provision deficit across the country’s banking sector remains high at Tk 19,261 crore thanks to some banks maintaining provision surpluses, according to central bank statistics.
However, the central bank statistics showed that the overall provision shortfall of banks expanded to Tk 19,261 crore in December 2023 from Tk 11,009 crore in December 2022.
Economists said the provision shortfall of a particular bank indicates that the health of the bank is poor. Considering border scale, the provision shortfall is an isolated issue rather highly linked with the overall sector’s performances.
The high provision shortfall is only the tip of the iceberg pointing the current huddles the sector is facing.
They pointed out that the significant shortfall was driven by a substantial rise in non-performing loans over the past year along with demise of governance, eroding the bank’s financial stability.
Experts also believe there are many banks that are not complying with the regulator’s guidelines.
If a bank goes for 100 per cent provisioning, it cuts into its profits. As a result, private banks cannot provide dividends to their shareholders which completely depend on profit.
Banks are required to maintain 0.50 per cent to 5.0 per cent of their operating profits in provisioning against general-category loans, 20 per cent against classified loans of substandard category, and 50 per cent against classified loans of doubtful category.
At the end of December quarter in 2023, National Bank Limited, a private commercial bank, experienced the highest provision shortfall of Tk 11,697 crore in December 2023, which was Tk 6,617.7 crore in December 2022.
BASIC Bank witnessed Tk 5,195 crore provision shortfall, while the figure was Tk 4,341crore for Agrani Bank, Tk 2,273 crore for Rupali Bank, , Tk 67 crore for Probashi Kallyan Bank and Tk 385 crore for Bangladesh Commerce Bank, and Tk 231 crore for Standard Bank, as of December last year.
Dr Salehuddin Ahmed, former Bangladesh Bank governor, said banks face the risk of capital shortfalls if they fail to uphold the necessary provisions.
“Such situations can have adverse effects on the banks, making deposits more precarious. Therefore, banks must ensure sufficient provisions to safeguard customer deposits,” he said.
He claimed some banks were badly affected by internal borrowing and now unable to recover loans which created further stress on prevision requirements.
Meanwhile, the amount of defaulted loans soared to Tk 1,45,633 crore at the end of December 2023 from Tk 1,20,656 crore at the end of December 2022.
The loans disbursed totalled at Tk 16,17,688 crore at the end of December 2023, with 9 per cent of them classified, according to international standards, a maximum of 3% default loans is considered tolerable.