Banks' provision deficit with the regulator has bloated to Tk 214 billion as they couldn't fulfill the cardinal security obligation in banking operations, foreboding deterioration in their financial health.
According to the latest statistics available with Bangladesh Bank (BB), the provisioning shortfall in banks widened over 62 per cent to Tk 214 billion as of last June, and there had been little indication of improvement in the situation by now.
The deficit a year ago in June 2022 was Tk 132 billion.
In comparison with the previous quarter (January-March 2023) figure, the volume of provisioning shortfall in the commercial banks rose by over 31 per cent as the provisioning shortfall was calculated at around Tk163 billion at the end of March.
Eight of the scheduled banks suffer provision shortfalls. The deficient eight include three state-owned commercial banks (SCBs) and five private commercial banks (PCBs).
According to the statistics, three of the SCBs have loan-provisioning shortfall amounting to Tk 107 billion while the accumulated shortfall in the five PCBs amounted to Tk 112 billion.
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 maintain 0.50 per cent-to 5.0 per cent of their operating profits 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 worse the status of a classified loan, the higher is the provisioning obligation for the banks. They have to set aside 100 per cent against bad loans from the profits as provisioning.
Many banking executives told the FE that the ongoing liquidity crunch facing the banking industry because of growing volumes of classified loans and forex-market volatility are the main reasons behind the shortfall.
A top executive at a private commercial bank says the shortfall was due to liquidity shortages in the industry.
"The foreign-exchange volatility has affected us adversely, leading to the fall in the provisioning," he told the FE writer about a pivotal cause stemming from a prime global concern of the day in addition to domestic factors.
The central bank should step up its monitoring in the banking sector in order to tackle the upward trend in default loans, he suggests as a cure for the ills on the home front.
In the meantime, banks' non-performing loan (NPL) buildup ballooned nearly 18.2 per cent to over Tk 1.56 trillion in June over March-end period, in what
economists term a lack of lending probity.
With this latest stroke, the overall ratio of non-performing loans or classified loans stood at 10.11 per cent - 1.31 percentage points higher than the March period. The total outstanding loans extended by banks stood at Tk 15.42 trillion as of June last.
In terms of category of banks, the volume of classified loans in the state-owned commercial banks (SCBs) stood at Tk 744 billion, or 25 per cent of their total outstanding. In private commercial banks (PCBs) the figure rose to Tk 736 billion or 6.50 per cent of their total outstanding.
The ratio of NPL in foreign commercial banks (FCBs) is around 5.0 per cent or Tk 30.20 billion while it is 12 per cent or Tk 47.00 billion in the country's three state-run specialised banks.
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