The Financial Express

Soured loans

Provisions shortfall soars in nine months

| Updated: December 10, 2019 19:47:49

Evaly and Fianancial Express Evaly and Fianancial Express
- Picture used for illustrative purpose - Picture used for illustrative purpose

The provisions shortfall against classified loans in the country's banking system swelled by nearly 23 per cent or Tk 15.15 billion during the first nine months of the calendar year.

The total shortfall soared to Tk 81.29 billion as on September 30 from Tk 66.15 billion on December 31 last year, according to the central bank's latest statistics.

Talking to the FE, a senior official of the Bangladesh Bank (BB) said higher growth in non-performing loans pushed up the volume of provisioning shortfall with the banks during the period.

The amount of classified loans in the country's banking sector jumped by nearly a quarter to Tk 1,162.88 billion as of September 30 last, from Tk 939.11 billion on December 31, 2018.

The public sector banks have faced more provisioning shortfall than their private counterparts, the central banker noted.

The shortfall was Tk 92.20 billion as on June 30, 2019, which was Tk 81.27 billion during the same period a year earlier.

"Profitability of some banks, especially in state lenders, has decreased after lower income mainly due to the slashing of interest rates on lending," the BB official said.

The banks have brought down the lending rate to single-digit, particularly for term loans and working capital in line with the decisions of the Bangladesh Association of Banks (BAB).

In June, the lobbyist group decided to cut back on the interest rates on both lending and deposit at 9.0 per cent and 6.0 per cent respectively from July 01.

"Higher NPLs are mainly responsible for the provisioning shortfall," Syed Mahbubur Rahman, chairman of Association of Bankers, Bangladesh, or ABB, told the FE.

The senior banker suggested the banks improve their assets quality for lowering the provisioning requirements.

Under the central bank regulations, the banks have to keep 0.25 per cent to 5.0 per cent provisions against loans under general category, 20 per cent against substandard category, 50 per cent against doubtful loans, and 100 per cent against bad or loss category.

The banks usually keep the required provisions against both classified and unclassified loans from their operating profits in order to mitigate risks. Talking to the FE, another central banker said the banks will have to step up their recovery drives to slash both NPLs and provisioning shortfall.

A total of 13 banks, out of 59, failed to keep the requisite provisions against mostly NPLs, in the third quarter (Q3) covering July-September period of 2019, the BB data showed.

Three of the league are state-owned banks and others are private lenders.

Fifteen banks, including four state lenders, faced such provisioning shortfall during the final quarter (Oct-Dec) of 2018. That number was 13 in the second quarter (April-June) of 2019. The banks have the scope for trimming their provisioning shortfall by reducing defaulted loans or increasing eligible collateral against credit, the BB official said.

The central banker also said the banks need to maintain provisioning against all types of loans to protect the interest of depositors.

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