Twelve scheduled banks including four state-owned banks suffered Tk 10,797.87 crore in provision shortfall at the end of December, 2019 despite the wholesale rescheduling facility introduced by the Bangladesh Bank to reduce defaulted loans in the country’s banking sector.
Despite the rescheduling, the volume of defaulted loans in the country’s banking sector increased by 0.45 per cent or Tk 420 crore in 2019.
Although the facility allowed banks to regularise defaulted loans around Tk 50,000 crore in the year 2019, the overall provision shortfall in the sector increased by Tk 41 crore to Tk 6,655.27 crore at the end of December, 2019 from Tk 6,614 crore a year ago.
The figure, however, dropped by 18.13 per cent or Tk 1,474.2 crore in December last year from Tk 8,129.47 crore in provision shortfall in September.
The overall provision shortfall was lower than the provision shortfall in 12 banks as some of the banks maintained higher provision against defaulted loans than the required amount, BB officials said.
According to the central bank regulations, banks are supposed to keep 0.25 per cent to 5.0 per cent provision against loans under general category, 20 per cent against substandard category, 50 per cent against doubtful loans, and 100 per cent against bad or loss category.
Keeping provision against both classified and unclassified loans from banks’ operating profits is a must to mitigate risks.
Policy Research Institute of Bangladesh executive director Ahsan H Mansur told New Age that the central bank should strictly ensure compliance with provisioning rules by the banks as the chances of defaulted loans recovery was very low.
In case of the state-owned banks, the government should provide capital to meet the deficiency while the sponsors of the private banks should be asked to provide capital so that the banks can keep adequate provision against defaulted loans, said Mansur, also the chairman of BRAC Bank.
Unless adequate provision requirement is fulfilled, safety of the depositors’ money might be at stake, Mansur said, adding that the banks which would suffer from provision shortfall would also face struggle in maintaining business relations with the international banks along with facing higher cost burden in maintaining business.
Of the 12 banks, state-owned BASIC Bank suffered the highest, Tk 3,334.12 crore, provision shortfall at the end of December, up Tk 313.12 crore on September’s Tk 3,021 crore in provision shortfall.
The other three state-owned banks — Sonali, Agrani and Rupali — suffered Tk 2,156.51 crore, Tk 1,442.95 crore and Tk 878.34 crore in provision shortfall respectively.
Of the private commercial banks, AB Bank faced the highest, Tk 637.33 crore, provision shortfall in December, down Tk 2,195.67 crore from Tk 2,833 crore three months ago.
Bangladesh Commerce Bank’s provision shortfall increased by Tk 50.03 crore to Tk 538.03 crore from Tk 488 crore.
Provision shortfall of National Bank dropped by Tk 470.68 crore to Tk 487.32 crore from Tk 958 crore.
Dhaka Bank faced Tk 425.93 crore in provision shortfall, Social Islami Bank Tk 296 crore, Mutual Trust Bank Tk 275.24 crore, Trust Bank Tk 164.19 crore and Standard Bank Tk 161.91 crore in provision shortfall at the end of December, 2019.
Despite the wholesale rescheduling, the volume of defaulted loans in the country’s banking sector stood at Tk 94,331 crore at the end of December last year while the figure was Tk 93,911 crore a year ago.
With the change, the percentage of non-performing loans in Bangladesh’s banking sector, however, dropped to 9.32 per cent at the end of December, 2019 from 10.3 per cent a year ago.
Defaulted loans in the sector, however, dropped by 18.88 per cent or Tk 21,957 crore in December last year from Tk 1,16,288 crore in September, 2019.
The outstanding loans in the banking sector stood at Tk 10,11,828 crore in December, 2019.
Economists and bankers, however, are sceptical about the sustainability of the decline in defaulted loans as most of the defaulters are wilful ones.
The figure might increase after certain period of time when the instalment payment will become due, they said.
If the written off loans to the tune of Tk 53,258 crore and the loans amounting to Tk 80,000 crore, the recovery of which has remained stalled due to court proceedings, are included in the amount, the total defaulted loans would be Tk 2,27,589 crore.