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Nine banks face provisioning shortfall of Tk 189.3bn

  • Staff Correspondent
  • 16 August, 2022 12:00 AM
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Nine banks face provisioning shortfall of Tk 189.3bn

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Provisioning shortfall in nine banks against their potential bad loans stood at Tk 189.32 billion at the end of June, according to the latest Bangladesh Bank data.

Overall shortfall in the whole banking sector, however, narrowed slightly to Tk132.19 billion as of June as some banks maintained higher than required provisioning.

The banks include Agrani, Basic, Janata, Rupali, Bangladesh Commerce Bank, Mutual Trust Bank, National Bank, South East Bank and Standard Bank.

Among those, higher deficit was found in four state-run banks, total deficit of which was Tk 110.16 billion.

But the six state-owned banks as a whole posted lower deficit of Tk 106.17 billion, down by nearly 61 per cent from December peak as Sonali and Bangladesh Development Bank kept higher provisioning.

In contrast, 42 private commercial banks aggregate shortfall rose to Tk 31.11 billion in June.

Loan provision is an income-statement expense set aside to allow for uncollected loans and loan payments.

Banks are required to account for potential loan defaults and expenses to ensure they are presenting an accurate assessment of their overall financial health, sans window-dressing.

Of the four state-run banks posting reporting shortfall after June, Basic Bank posted the highest provisioning deficit of 44.42 billion, followed by Agrani Bank’s Tk 29.73 billion, Rupali Bank’s Tk 29.62 billion deficits. On the contrary, the largest state bank-Sonali maintained higher provisioning of over Tk 3.80 billion while Bangladesh Development Bank kept Tk 194.9 million extra provisioning. 

The rest five are private banks out of the said nine banks posted Tk 79.15 billion overall provisioning shortfall at the end of June. Of them, National Bank had the highest Tk 71.16 billion shortfall.

Islami Bank maintained Tk 27.34 billion additional provision than its required amount, while Prime Bank Ltd kept Tk 5.86 million extra money and Pubali Bank Tk 5.10 billion.

“A bank can not announce profit, if it has provisioning shortfall. A bank can face capital shortfall, if it fails to maintain the provisioning properly, which is seen as a negative side of a bank,” former Bangladesh Bank governor Dr Salehuddin Ahmed explained.

During the said period, the classified loans of the total outstanding credits stood at approximately 9 percent. It was nearly 8 percent in December 2021.

The overall bad loan in June also jumped to over 8 percent, up by nearly 1 percentage point from the December figure.

Total outstanding loans stood nearly at Tk 13.986 trillion as of June. Of the figure, Tk 12.733 trillion or over 91 per cent was unclassified.

The BB earlier had asked all the scheduled banks to keep additional 2.0-percent special general provisioning instead of earlier 1.0 percent against loans which have enjoyed latest policy support of the central bank.

In the case of CMSE (cottage, micro and small enterprises), such provisioning was 1.50 per cent, according to the central bank.

As per BB regulations, the banks have to keep 0.25-percent to 2.0-percent provisions against general category of loans, 20-percent against substandard category, 50-percent against doubtful loans, and 100-percent against bad or 'loss' category of loans.

All the scheduled banks usually keep requisite provisions against both classified and unclassified loans from their operating profits in a bid to mitigate financial risks.

Dr Salehuddin observed that Banks have been reluctant to collect the defaulted loans and they don’t need to be accountable to the central bank for this.

He suggested the central bank to take long-term policy to lower the defaulted loans, loan rescheduling and provisioning shortfall. For this, he called for creating a banking commission.