Annualized provision shortfall for the banking sector ballooned by around 75% in 2023 mainly due to rising classified loans and forex-market volatility.
The provisioning-fund deficit against bad assets in commercial banks increased to Tk19,300 crore by end of 2023, up from Tk11,000 crore recorded in 2022, according to the latest statistics of Bangladesh Bank (BB).
This upswing, especially from seven provision-shortfall-contributing commercial lenders, stems from banks' failure to meet the fundamental security obligations in banking operations and indicates a deteriorating financial health of the sector, sources said.
The country's commercial banks needed to apportion funds amounting Tk98,900 crore in 2023 for provisioning against their outstanding loans of Tk1,618,000 crore but ran short maintaining only Tk79,700 crore, leaving a deficit of around 75%.
The state-owned commercial banks (SCBs) hold the major share of the deficit amounting to Tk10,100 crore while the provisioning gap in PCBs (private commercial banks) was calculated at Tk10,000 crore in 2023.
But foreign commercial banks (FCBs) boast of provisioning surplus worth Tk50,400 crore while provisioning surplus in specialized banks worth Tk34,900 crore was recorded in 2023, according to the data.
Provisioning shortfall occurs when a financial obligation surpasses the available cash.
This shortfall can be temporary, arising from specific circumstances or persistent -- signalling poor financial-management practices.
Banks are obligated to reserve 0.50% to 5% of their operating profits for provisioning against general-category loans, 20% against classified loans in the substandard category and 50% against classified loans in the doubtful category.
The severity of a classified loan determines the level of provisioning banks must set aside from profits, with 100% required against bad loans having potential risk of loss.
