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Despite some banks maintaining provision surpluses, the provision deficit across the country’s banking sector remains high at Tk 192.61 billion, according to central bank statistics.
Besides, the provision deficit of the seven private and state-owned commercial banks (SCBs) reached a staggering Tk 241.86 billion as of December last year, Bangladesh Bank has said in a report.
However, there is a glimmer of hope as this deficit has decreased by Tk 60.10 billion in just three months.
This provision shortfall remains high as banks failed to meet the fundamental security obligations in banking operations, indicating a deteriorating financial health of the sector.
According to the statistics, three of the SCBs have a loan-provisioning shortfall of over Tk 118.08 billion, while the accumulated shortfall in the four PCBs stands at Tk 123.12 billion.
A provision shortfall occurs when a financial obligation exceeds the amount of cash available. It can be temporary, arising from a unique set of circumstances, or persistent, indicating poor financial management practices.
Banks are required 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.
Classified loans in the banking sector showed an annual increase by around 21 per cent to Tk 1.46 trillion in 2023, until a downturn towards the year-end under regulatory pressure.
The percentage of bad loans in banks stood at 9.0 per cent against total outstanding credits worth Tk 16.18 trillion, as of last December.
A year ago, the share of the classified loans was 8.16 per cent, according to BB data. At the end of 2022, the figure for non-performing loans (NPLs) in banks was recorded at Tk 1.21 trillion.
That means the burden of bad loans in the banking industry surged by over Tk 250 billion throughout the immediate-past calendar year.
The latest data show that state-owned commercial banks (SCBs) hold the biggest share of classified loans (21 per cent or Tk 658 billion of their outstanding loans) followed by specialised banks (13.87 per cent or Tk 56.70 billion), private commercial banks (5.93 per cent or Tk 710 billion) and foreign commercial banks (4.82 per cent or Tk 32 billion).
The category-wise shares of NPLs at the end of 2022 were 20.28 per cent or Tk 565 billion in SCBs, 12.80 per cent or Tk 47.09 billion in specialised banks, 5.13 per cent or Tk 564 billion in PCBs and 4.91 per cent or Tk 30.48 billion in Foreign Commercial Banks (FCBs).