Provisioning requirement lifted for 5 banks

Bangladesh Bank has taken an important policy decision to ease the pressure on the huge amount of money stuck in the country’s Shariah-based banks.

The central bank has said that the obligation to keep provisions or security reserves against these stuck funds has been lifted.

The relevant department of the central bank announced this decision on Thursday.

The concerned parties believe that this will provide some relief to the concerned banks and financial institutions from the additional financial pressure for the time being.

After the five Shariah-based banks in financial crisis-First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank and Exim Bank-were brought under the consolidated structure, a huge amount of money from other banks and financial institutions was stuck in these banks.

According to central bank sources, more than Tk15,000 crore was stuck with these banks.
Of this, Islamic Bank Bangladesh had about Tk8,425 crore stuck. Although the partial amount has been returned, about Tk8,279 crore is still outstanding.

The concerned officials said that initially the Banking Supervision Department (BSD) and the Department of Financial Institutions and Markets (DFIM) had given instructions to keep provisions against the stuck money.
However, later the Bank Resolution Department (BRD) opined that there was no need to keep provisions in the case of this money under special arrangements.
A central bank official, on condition of anonymity, said that the stuck money is under a special scheme.
In future, the concerned banks may get the money back directly, or an equivalent value adjustment may be made through long-term deposits (FDRs) or shares. Due to this, the risk of the money being completely lost is considered low for now.
He also said that there is a possibility that the concerned banks may get shares at the end of the specified period or get the money back with profit after five years. In this reality, the obligation to keep provisions has been lifted.
However, those involved in the sector believe that while this decision may ease the pressure in the short term, fully recovering the stuck money in the long term still remains a major challenge.