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Seven banks, including three state-owned ones, have posted a provision shortfall of Tk 24,189 crore at the end of December quarter in 2023, indicating their worsening financial health, triggered by loan irregularities and lack of governance.
Agrani Bank, BASIC Bank, Rupali Bank, National Bank, Bangladesh Commerce Bank, Standard Bank, and Probashi Kallyan Bank are in this list, according to the Bangladesh Bank.
Central bank sources say the three state-owned banks suffered a provision shortfall of Tk 11,809 crore, and the figure was Tk 12,313 crore for three private banks.
The number of banks facing provision shortfalls was nine – including three state-owned banks at the end of September quarter. These nine banks had a provision shortfall of Tk 28,853 crore at the end of September quarter.
Banks have to keep 0.5 to 5 per cent of their operating profit in provisioning against general category loans, 20 per cent against classified loans of substandard category, and 50 per cent against classified loans of doubtful category.
The lenders also have to set aside 100 per cent provisioning against classified loans of bad or loss category, as per the central bank rules.
Experts believe there are many banks that are not complying with the regulator's guidelines. If a bank goes for 100 per cent provisioning, it cuts into its profits. As a result, private banks cannot provide dividends to their shareholders, and dividends completely depend on profit.
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 this 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.”
Mansur then pointed out, “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.”
At the end of December quarter in 2023, BASIC Bank witnessed Tk 5,195 crore provision shortfall, while the figure was Tk 4,341crore for Agrani Bank, Tk 2,273 crore for Rupali Bank, Tk 11,697 crore for National Bank, Tk 385 crore for Bangladesh Commerce Bank, Tk 231 crore for Standard Bank, and Tk 67 crore for Probashi Kallyan Bank.
Non-performing loans (NPL) in Bangladesh declined to Tk 1,45,633 crore at the end of December last year, occupying 9 per cent of the banking sector’s outstanding loans of Tk 16,17,689 crore.
Speaking to The Business Post, former chairman of Association of Bankers, Bangladesh (ABB) Mohammed Nurul Amin said, “There are three key reasons behind the dip in NPLs at the end of December, compared to September last year.
“Usually, the banks decrease the volume of NPLs through recovery, rescheduling or write-offs of loans. So the central bank should be clear about how the NPLs decreased in the banking sector.”
The central bank gave rescheduling privileges to banks for reducing classified loans. As a result, there are many people who are taking this privilege, and the amount of NPLs is decreasing in the banking sector, he added.
