The high amount of non-performing loans in the banking sector is largely responsible for the huge provision shortfall, say bankers
Eleven scheduled banks, including four state-owned banks, suffered a Tk8,632 crore in provision shortfall at the end of March, this year, exposing their faltering financial health due mainly to their soaring bed debts.
The banks are– Sonali Bank, Agrani Bank, Rupali Bank, BASIC Bank, AB Bank, Bangladesh Commerce Bank, Dhaka Bank, Mutual Trust Bank, National Bank, Social Islami Bank and Trust Bank, according to the latest data of the Bangladesh Bank (BB).
As per the central bank regulations, banks have to keep 0.50% to 5% provision with the BB against borrowers loans of general category, 20% against classified loans of sub-standard category, 50% against classified loans of doubtful category, and 100% against classified loans of bad or loss category.
The high amount of non-performing loans in the banking sector is largely responsible for the huge provision shortfall, say bankers.
At the end of March this year, the amount of NPLs in the banking sector stood at Tk92,510 crore, which was 9.03% of the total disbursed loans, according to another data of the BB.
However, banks’ non-performing loans (NPLs) declined by Tk1,821 crore in three months till March this year as the central bank asked banks not to classify loans for nine months till September to help borrowers to combat the economic fallout of Covid-19.
Bankers said the defaulted loans in the January-March period declined because the central bank had barred banks not to downgrade any loan for the borrowers’ failure to pay installments in the January-September period this year.
As of March, this year, state-owned BASIC bank had the highest provision shortfall of Tk2,734 crore; Sonali Bank’s Tk1,362.54crore; Agrani Bank’s shortfall Tk1, 150.46 crore, and the shortfall of Rupali Bank was Tk795 crore.
According to the BB, the provision shortfall of AB Bank stood at Tk680crore; Bangladesh Commerce Bank at Tk570 crore; Mutual Trust Bank at Tk280 crore; Dhaka Bank at Tk182 crore; National Bank at Tk487 crore; Social Islami Bank at Tk259 crore and Trust Bank's provisioning deficit stood at Tk98 crore.
Experts said the banking sector had been under various pressures due to a lack of good governance and high amount of defaulted loans. Now the pressures were intensifying due to the economic fallout created by pandemic coronavirus, they added.
“The defaulted culture of the country's banking sector is known to all. Some of the banks have failed to keep provisions against their defaulted loans. That means, the money of depositors is at risk,” said a high official of the central bank.
Talking to Dhaka Tribune, former governor of the Bangladesh Bank Salehuddin Ahmed said, “Provision shortfall is a bad sign for a bank that only indicates the weak financial health of that particular bank.”
The capital base of those banks would erode significantly as they must keep provisioning as per the central bank rules, he added.