SoCBs\' provision shortfall widens on higher NPLs

Public banks are getting into some difficulty in lending as their overall shortfall in provision against both classified and unclassified loans increased over 6.0 per cent in the first quarter (Q1) of this year.
According to the central bank's latest statistics, the amount of provisioning shortfalls of three out of the six state-owned commercial banks (SoCBs) rose to Tk 64.73 billion during the January-March period of the current calendar year from Tk 60.81 billion in the preceding quarter.
Talking to the FE, a senior official of the Bangladesh Bank (BB) said the provision shortfall of SoCBs widened during the period under review mainly owing to higher growth in their non-performing loans (NPLs).
During the January-March period, the total amount of NPLs with the six SoCBs bloated into Tk 357.17 billion from Tk 310.26 billion in the previous quarter.
The SoCBs are not allowed to provide loans freely, the central banker said, as they will have to follow their credit-growth limits, set by the BB earlier, while sanctioning as well as disbursing fresh loans.
The central bank had set the credit-growth ceilings in line with the memoranda of understanding (MoU) signed between the BB and the SoCBs earlier for improving financial health of the public banks.
Under the MoUs, the BB calculates the credit ceiling excluding farm loans, staff loans and government borrowings to be provided by the four SoCBs out of six.
However, the overall shortfall in the provision in the country's banking system decreased by 4.34 per cent or Tk 2.38 billion during the period under review following higher credit growth particularly in private sector.
The amount of provisioning shortfalls in the banking sector came down to Tk 52.32 billion in the Q1 of 2017 from Tk 54.70 billion three months before. It was Tk 41.24 billion as on March 31, 2016.
"The operating profits of the banks, particularly private commercial banks (PCBs) and foreign commercial banks (FCBs), increased mainly due to higher private-sector credit growth," another BB official explained.
The growth in private credit flow rose to 16.06 per cent in March 2017 on a year-on-year basis from 15.88 per cent a month ago. It was 15.61 per cent in January 2017.
He also said the overall provision shortfall may improve further in the second quarter of this calendar year if the higher private-sector credit growth continues.
But some banks have maintained more provisions than regulatory requirements following their conditional rescheduling of loans, according to the BB official.
He also said a large amount of classified loans had been rescheduled on some conditions set by the central bank to minimise risks
Such rescheduled credits were treated as unclassified ones, but the banks were asked to maintain provisions in accordance with previous status of the loans, the BB official explained.
Only six banks out of 57 have failed to keep requisite provisions against loans, particularly classified ones, according to the BB officials.
Of them, three are SoCBs and the rest PCBs.
Under the existing BB regulations, the banks have to keep 0.25 per cent to 5.0 per cent provisions against general-category loans, 20 per cent provision against substandard category, 50 per cent against doubtful loans and 100 per cent against bad or loss category.
The banks normally keep requisite provisions against their unclassified credits and NPLs from their operating profits in a bid to mitigate financial risks, they added.
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