Banks’ provision shortfall widens
The provisioning scenario of banks in Bangladesh further deteriorated in the first quarter of this year for an increase in default loans, an indication of the banking industry's health having worsened.
Provision shortfall widened to Tk 14,746 crore in March, up 180 per cent year-on-year and 5 per cent from that three months ago, according to data from Bangladesh Bank.
Provision shortfall occurs when a financial obligation exceeds the amount of cash available. It can be temporary, arising out of a unique set of circumstances, or persistent, indicating poor financial management practices.
Banks have to earmark 0.50 per cent 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.
It has to set aside 100 per cent of classified loans of bad or loss category from the profits as provisioning.
The provisioning situation may further worsen as default loan figures are expected to jump higher this year as the central bank in December last year lifted a loan classification relaxation policy.
The central bank maintained a moratorium facility for borrowers throughout 2020.
As a result, banks did not reclassify the credit status of borrowers, bringing non-performing loans (NPLs) down to Tk 88,734 crore, a decrease of 6 per cent from that of 2019.
The BB also continued running the loan relaxation policy until last year, helping banks contain non-performing loans significantly.
Under the policy, borrowers were allowed to avoid slipping into the default zone in exchange of depositing only 15 per cent of the total instalments payable last year.
Default loans in banks surged 19.3 per cent year-on-year to Tk 113,441 crore in the first quarter of 2022.
Between January and March, the shortfall rose due to the lacklustre performance of eight banks, which had a combined deficit of Tk 20,863 crore.
The banks are Agrani, Basic, Janata, Rupali, Bangladesh Commerce, Mutual Trust, National Bank and Standard Bank.
Some of the banks which are now facing shortfalls earlier had suffered widespread loan scams.
Of the lenders, Janata Bank faced the highest provision shortfall of Tk 8,136 crore mainly due to a large scam taking place at the bank in the last couple of months.
Some persons and entities such as AnonTex and Crescent groups earlier siphoned off a large amount of funds from Janata Bank in the name of taking loans, dealing a blow to the financial health of the lender.
Contacted, Md Abdus Salam Azad, managing director of Janata Bank, said the provision shortfall of the lender had decreased in recent months, standing at Tk 10,491 crore in December last year.
He went on to hope that the shortfall would be further lessened in the days to come as they were now gearing up the loan recovery process.
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