15 Banks Face Tk 229,000 Crore Provision Shortfall Amid Mounting Default Loans

Staff Correspondent

Several banks in the country are struggling to cope with the pressure of defaulted loans. Due to the decline in income, some banks are not able to maintain the necessary provisions or safety reserves. This is increasing pressure on the financial capacity and capital situation of these banks.

According to Bangladesh Bank data, the provision deficit of 15 public and private banks stood at Tk 229,146 crore at the end of the June quarter of this year. Of this, the deficit of five state-owned banks is Tk 78,330 crore. And the deficit of 10 private banks is more than Tk 150,000 crore.

At the same time, defaulted loans in the country’s banking sector have increased by 6 lakh 6 thousand 555 crore taka. 32.78 percent of the total loans disbursed are now defaulted. The increase in defaulted loans has also increased the need for banks to maintain provisions. But the financial risk of some banks is increasing as they are unable to maintain the necessary funds due to the decrease in income.

Senior economist and former chief economist of Bangladesh Bank Dr. Mustafa K. Mujeri said that the financial condition of some banks has become fragile due to the nameless loan distribution during the previous government. As the default loans in these banks increased, the need for provisions has also increased. But due to lack of income, they are not able to save the necessary provisions. According to the rules, if there is a provision deficit, the bank cannot declare profit.

Among the five state-owned banks, Janata Bank has the highest provision deficit. The bank’s deficit stood at Tk 50,160 crore at the end of June. Agrani Bank has a deficit of Tk 12,338 crore, Rupali Bank has a deficit of Tk 10,753 crore, Basic Bank has a deficit of Tk 5,470 crore and Bangladesh Development Bank has a deficit of Tk 330 crore.

Among the 10 private banks, Islami Bank Bangladesh has the highest provision deficit of Tk 82,334 crore. National Bank has a deficit of Tk 23,326 crore and IFIC Bank has a deficit of Tk 21,894 crore.

Apart from this, Premier Bank has a provision deficit of Tk 11,971 crore, Union Bank has a provision deficit of Tk 5,050 crore, Standard Bank has a provision deficit of Tk 2,595 crore, Mercantile Bank has a provision deficit of Tk 2,950 crore, Bangladesh Commerce Bank has a provision deficit of Tk 6,450 crore, NRBC Bank has a provision deficit of Tk 8,200 crore and NRB Bank has a provision deficit of Tk 1,300 crore.

Banks have to reserve a certain amount of provision according to the quality of their loans. Provisions range from 0.25 percent to 5 percent for regular loans, 20 percent for sub-standard loans, 50 percent for doubtful loans, and 100 percent for bad loans.

This money is set aside to ensure that the bank does not face major financial losses if a loan is not collected. As the number of defaulted loans increases, the need for provisions also increases.

According to Bangladesh Bank, the provisioning requirement for the entire banking sector at the end of June was Tk 4,83,397 crore. Against this, banks have reserved Tk 2,61,399 crore. As a result, the provisioning deficit in the overall banking sector stands at Tk 2,22,357 crore.

However, if we look at the accounts of the 15 troubled banks separately, their deficit is Tk 2,29,146 crore. This is because some banks have been able to reserve more provisions than required. That additional reserve has somewhat reduced the provision deficit of the overall banking sector.

This pressure of non-performing loans is not limited to the income and profits of banks. If the provision deficit is prolonged, it may weaken the capital position of the bank and put pressure on its ability to distribute new loans and collect deposits. As a result, along with high non-performing loans, provision deficit has now become a major concern for the banking sector.