Banks' provision shortfall drops by Tk2,520cr in Dec quarter

HIGHLIGHTS: 

• Provision shortfall of eight banks stood at Tk19,046 crore in the December quarter.
• Basic Bank faces the highest shortfall of Tk4,535 crore among state-owned banks.
• The National Bank's deficit was Tk6,617 crore.

The provision shortfall in the banking sector dropped substantially by Tk2,520 crore in the three months through December last year, thanks to a massive decrease in defaulted loans.

The total provision shortfall came down to Tk11,009 crore in the December quarter, compared to Tk13,529 crore in the previous quarter, according to a report from the Bangladesh Bank.

However, the report showed that at the end of December, the total provision shortfall of four state-owned, three private, and one specialised bank amounted to Tk19,046 crore, compared to Tk19,833 crore in the previous quarter.

Emranul Huq, managing director of Dhaka Bank, told The Business Standard, "Banks generally have to make provisioning against defaulted loans. The number of large non-performing loans decreased in the December quarter, narrowing the provisioning shortfall."

He also said that the banks were in a liquidity crunch, due to which they were very active in recovering defaulted loans. Besides, the central bank has eased the loan rescheduling policy, which has also contributed to a reduction in defaulted loans.

The central bank report further said that defaulted loans in the banking sector declined substantially by Tk13,740 crore in the October-December quarter of last year, riding on huge loan rescheduling under new policy and a relaxed loan repayment facility offered by the Bangladesh Bank.

The total default loan came down to Tk1.20 lakh crore in December after reaching a record high of Tk1.34 lakh crore in September, according to data from the central bank.

BASIC Bank holds the largest shortfall among the four state-owned banks. In December, its provision shortfall stood at around Tk4,535 crore, followed by Agrani Bank's Tk4,422 crore and Rupali Bank's Tk2,814 crore.

Furthermore, Bangladesh Commerce Bank had a provision shortfall of Tk343 crore.

In the same quarter, state-owned Janata Bank surged to a provision surplus of Tk1,853 crore, from Tk599 crore shortfall in the July-September quarter.

According to rules, banks have to keep 20% of provision against classified loans in the substandard category and 50% of provision against classified loans in the doubtful category.

They have to set aside 100% of classified loans in the bad or loss category from the profits for provisioning.

Seeking anonymity, a senior official at the central bank told TBS that when customers obtain stay orders from court, loans cannot be shown to have defaulted. Still, the provisioning has to be maintained against the loans.

In addition, three private banks have a provision shortfall. National Bank's shortfall was Tk6,617 crore, followed by Mutual Trust Bank's Tk171 crore and Standard Bank's Tk139 crore.

Besides, the provision shortfall of the specialised Bangladesh Krishi Bank stood at Tk3 crore.

Former governor of the Bangladesh Bank Salehuddin Ahmed said, "If there is a provision shortfall, a bank cannot declare dividend. If banks fail to maintain the required provisions, they are at risk of falling into capital shortfalls. This has a negative impact on banks. Then deposits become risky."

"A banking commission should be constituted to solve the problems in the banking sector," added the economist.