The increase in provisioning was mainly due to increase in defaulted loans as many of the borrowers refrained from paying installments
Listed banks have witnessed a 25.13% or Tk390.83crore increases in provisioning in their financial statements against defaulted loans during the January-March quarter of 2019, compared to the same period last year.
According to the quarterly report, the listed 30 banks have kept Tk1,946.26crore in provision against defaulted loans during the Q1 this year against Tk1,555.43crore in the same period last year.
The increase in provisioning was mainly due to increase in defaulted loans as many of the borrowers refrained from paying installments, said a Bangladesh Bank (BB) official.
The government move to issue bailout package for the defaulters with just 2% down payment was the main reason behind the nonpayment, he claimed.
On May 16, the central bank issued a circular stating that the defaulters would get 10 years to repay loans with two years of grace period at 9% interest.
As of March this year, the non-performing loans (NPLs) of the country’s banking sector stood at Tk1,10,873.54crore, the highest ever in the country.
During the January-March quarter, the NPLs of banks rose by a staggering Tk16,962 crore.
Former Bangladesh Bank Governor Salehuddin Ahmed said: “The policies adopted recently by the government and the central bank for banking sector went in the wrong direction. The defaulters were given leverage by these policies. Good borrowers are now feeling discouraged to pay debts.”
The central bank must be rigorous to reduce the defaulted loans and all the facilities extended to the defaulters should be scrapped, he suggested.
Of the listed banks, Islami Bank Bangladesh Limited maintained the highest Tk302.96crore in provision against defaulted loans during Q1 this year.
The Q1 figure was 36.04% or Tk80.26crore higher than the Tk222.7crore provisioning of the bank in the same period last year.
Dutch-Bangla Bank maintained Tk136.76crore provision in Q1, up by 349.57% or Tk106.34crore from Tk30.42crore in January-March last year.
Pubali Bank’s provisioning against non-performing loans increased by 66.67% or Tk44crore to Tk110crore from Tk66 crore.
Southeast Bank’s provisioning for defaulted loans increased to Tk109.62 crore from Tk101.51crore, while Al-Arafah Islami Bank maintained Tk90.61crore in provision, Mercantile Bank Tk84.9crore, NCC Bank Tk83.5crore, Dhaka Bank Tk81.81 crore, Bank Asia Tk76.43 crore, Trust Bank Tk70 crore, BRAC Bank Tk63.89 crore, One Bank Tk61.33, City Bank Tk58.39 crore, Social Islami Bank Tk52.44 crore, Mutual Trust Bank Tk51.9crore and Eastern Bank Tk50.41 crore.
Shahjalal Islami Bank maintained Tk48.65 crore in provision, IFIC Bank Tk48.55crore, First Security Islami Bank Tk45.83 crore, Prime Bank Tk45.72crore, Premier Bank Tk42 crore, NBL Tk35 crore, Standard Bank Tk34.77 crore, AB Bank Tk34.53 crore, Jamuna Bank Tk33.99 crore, Uttara Bank Tk26.62 crore, UCB Tk25.5crore, Rupali Bank Tk21.08 crore, EXIM Bank Tk16.77crore and ICB Islami Bank Tk2.3 crore in provision against NPL.
Banks keep provision against defaulted loans for safety of the depositors. The higher the NPL, the higher the provision.
Banks' profit margin falls due to the NPL as the amount kept aside as provision are deducted from their operating profit and considered as one sort of cost for the entities.
As per the central bank regulations, banks have to keep 20% provision against substandard loans for the next three months.
The provisioning requirement increases to 50% if any loan turns doubtful and the provisioning increases to 100% if any loan becomes bad.