The shortfall in provisions against loans, mostly classified ones, in the banking system has narrowed by over 18 per cent in the fourth quarter of 2019 on the back of lower growth in default loans.
The overall shortfall came down to Tk 66.55 billion as on December 31 of the last calendar year from Tk 81.29 billion three months ago, the central bank's latest data show.
However, the shortfall edged up by 0.61 per cent year on year -- to Tk 66.55 billion in 2019 from Tk 66.15 billion a year earlier, the Bangladesh Bank (BB) data revealed.
"Lower growth in non-performing loans (NPLs) pushed down the volume of provisioning shortfall with the banks significantly during the period under review," a senior BB official told the FE on Tuesday.
The classified loans dropped by nearly 19 per cent to Tk 943.31 billion as on December 31 of 2019 from Tk 1,162.88 billion three months ago.
Also, the share of NPLs in the total outstanding loans came down to 9.32 per cent as on December 31 in 2019 from 11.99 per cent three months back. The figure was 10.30 per cent on December 31, 2018.
The state-owned commercial banks (SoCBs) have faced more provisioning shortfall than their private counterparts, according to the central bank official.
"The situation regarding the provisioning shortfall in SoCBs may improve if they get regulatory forbearance from the BB," he added.
He said the banks have the scope to shrink their provisioning shortfall by reducing classified loans or increasing eligible collateral against credit.
"The banks will have to reduce their risk-weighted assets in order to improve the situation of provisioning shortfall," the central banker observed.
A total of 11 banks, out of 59, have failed to make the requisite provisions against NPLs mostly in the fourth quarter (Q4) from October to December of 2019.
That number was 12 in the third quarter (July-September) of 2019.
Talking to the FE, a senior executive of a leading private commercial bank suggested that the banks should improve the quality of their assets to lower the provisioning requirements.
Under the central bank regulations, the banks have to make 0.25 per cent to 5.0 per cent provisions against loans in general category, 20 per cent in substandard category, 50 per cent against doubtful loans and 100 per cent in bad or loss category.
The banks usually make the required provisions against both classified and unclassified loans from their operating profits in order to mitigate risks.