Nine banks, including three state-owned ones, witnessed a provision shortfall of Tk 28,854 crore at the end of July-September period (Q3) this year, indicating their worsening financial health caused by loan irregularities and lack of governance.
According to the Bangladesh Bank, these are – Agrani Bank, BASIC Bank, Rupali Bank, National Bank, Dhaka Bank, Bangladesh Commerce Bank, Standard Bank, NCC Bank and Modhumoti Bank.
Central bank sources say the three state-owned banks suffered a provision shortfall of Tk 12,688 crore, and the figure was Tk 16,166 crore for private banks.
The number of banks facing provision shortfall was eight – including three state-owned banks –at the end of both Q1 and Q2 this year. These eight banks had a provision shortfall of Tk 20,159 crore at the end of January-March period.
Meanwhile, at the end of April-June period, they posted a provision shortfall of Tk 26,134 crore. Later in Q3, Modhumoti Bank joined the list. An analysis of the data shows a gradual and alarming increase in the banks' provision shortfall trend.
Speaking to the Business Post, Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “The managements of these banks are not interested in provisioning against loans.
“In the process of provision, a bank requires money from their profits. Nowadays, these banks are not taking money from their profits for provisioning, because they focus on providing dividends to their shareholders.
He added, “There are many loans that need 100 per cent provisioning, but banks only provide 10 per cent, which is not good for the banking sector. These banks are now suffering up to 90 per cent provision shortfall.
“The central bank should force these banks to maintain 100 per cent provisioning against loans. Shareholders should inject capital into their respective organisations if it faces a provision shortfall. The central bank should force.”
Mansur then pointed out that “Provision shortfall indicates that the health of a particular bank is poor. When the non-performing loans (NPLs) increase in a bank, it has to provision against bad loans.”
Former lead economist of World Bank Dhaka Office Dr Zahid Hussain said, “The Bangladesh Bank issued a guideline about provisioning against loans. However, there are many banks that are not complying with the regulator's guidelines.
“If a bank does 100 per cent provisioning, then it cuts into the profit of a bank. As a result, private banks cannot provide dividends to their shareholders, and dividends completely depend on profit. Moreover, if some banks provision 100 per cent, then dividends would be zero. So, the management of these banks is trying to avoid provisioning.”
He added, “In the cases of the state-owned commercial banks, their respective management is also trying to provision 100 per cent, because the senior officials are trying to improve their image by earning profits.
“On the other hand, the central bank is yet to take action against these banks on the issue of provision shortfall. The regulator should take action.”
At the end of Q3 this year, the provision shortfall of BASIC Bank was Tk 4,748 crore, required provision Tk 5,340 crore; provision shortfall of Agrani Bank was Tk 4,600 crore, required provision Tk 9,914 crore; provision shortfall of Rupali Bank Tk 4,198 crore, required provision Tk 5,843 crore.
Provision shortfall of National Bank stood at Tk 13,797 crore, required provision Tk 15,681 crore; provision shortfall of Dhaka Bank Tk 398, required provision Tk 2,129 crore; provision shortfall of Bangladesh Commerce Bank Tk 542 crore, required provision Tk 914 crore.
Provision shortfall of Standard Chartered Bank stood at Tk 234 crore, required provision Tk 759 crore; provision shortfall of NCC Bank Tk 334 crore, required provision Tk 1,521 crore; and the provision shortfall of Modhumoti bank was Tk 0.90 crore, required provision Tk 191 crore.
Non-performing loans (NPL) in Bangladesh stood at Tk 1,55,397 crore at the end of July-September period (Q3) this year, occupying 9.93 per cent of the banking sector’s outstanding loans of Tk 1,565,195 crore.
This is a Tk 642 crore decline compared to Q2 (April-June) of the same year, when NPLs had accounted for 10.11 per cent or Tk 1,56,039 crore of the banking sector’s outstanding loans of Tk 15,42,655 crore, Bangladesh Bank sources say.
At the end of Q3, NPLs stood at Tk 65,797 crore in the state-owned commercial banks, which is 21.70 per of the total classified loans in the country. Meanwhile, private commercial banks' NPLs stood at Tk 81,537 crore, which is 7.04 per cent of the banking sector.
Foreign commercial banks recorded Tk 3,286 crore in NPLs during the July-September period, which is 5.07 per cent of the banking sector. Specialised banks’ NPLs were Tk 4,777 crore, which is 12.10 per cent of the banking sector at the end of third quarter this year.
