Overall provisioning shortfall in Bangladesh's banking system soared over a hundredfold in the last calendar year, as classified loans weighed heavily during the period.
The aggregate amount of provisioning shortfall rose to Tk 140.07 billion, as of December 31, from Tk 1.23 billion a year before, according to the central bank's latest statistics.
The provisioning shortfall was Tk 62.04 billion on September 30, 2021.
"The volume of provision shortfall increased significantly during the period under review mainly due to upward trend in non-performing loans (NPLs) in the banking sector," a senior official of the Bangladesh Bank (BB) told the FE Thursday.
The amount of classified loans in the country's banking system jumped by 16.38 per cent or Tk 145.40 billion to Tk 1032.74 billion, as of December 31, in the past year from Tk 887.34 billion a year ago, despite policy support from the central bank.
"Lower recovery along with additional general provisioning against loans, which had enjoyed latest policy support of the central bank, lowered the earnings of the banks," the central banker said while explaining the latest situation on provisioning shortfall.
The BB earlier had asked all the scheduled banks to keep additional 2.0-per cent special general provisioning instead of earlier 1.0 per cent against loans, which have enjoyed latest policy support of the central bank.
In the case of CMSE (cottage, micro and small enterprises), such provisioning was 1.50 per cent, according to the BB official.
As per the BB regulations, the banks have to keep 0.25-per cent to 2.0- per cent provisions against general category of loans, 20-per cent against substandard category, 50-per cent against doubtful loans, and 100-per cent against bad or 'loss' category of loans.
All the scheduled banks usually keep required provisions against both classified and unclassified loans from their operating profits in a bid to mitigate financial risks, according to the central banker.
Talking to the FE, a senior executive of a leading private commercial bank (PCB) said some banks failed to keep requisite provisioning against loans mainly due to their lower earnings in 2021 despite extraordinary policy support from the central bank.
He also predicted that the provisioning shortfall might increase in the coming quarters because of withdrawal BB policy support.
The latest BB data show nine banks out of 60 failed to keep requisite provisions against loans, particularly classified credits, in the final quarter (Q4) of last calendar year.
Of them, four are state-owned commercial banks (SoCBs) and others PCBs.
The combined shortfall of these banks stood at Tk 225.73 billion, as of December 31, 2021. During the final quarter of 2020, 11 banks failed to maintain the required provisioning against their loans. The combined shortfall of these banks was Tk 71.46 billion at the end of 2020.
The SoCBs faced more provisioning shortfall than that of PCBs during the period under review, according to the central bank reports.
"Capital base of banks should be strengthened to face any incident that may happen because of increasing NPLs," Syed Mahbubur Rahman, managing director (MD) and chief executive officer (CEO) of Mutual Trust Bank Limited, told the FE.
The senior banker also says the banks will have to recover more from bad loans for reducing the provisioning shortfall.
"The provisioning shortfall should be addressed immediately to improve risk-absorption capital of NPLs of the banks," Shah Md. Ahsan Habib, professor and director at the Bangladesh Institute of Bank Management (BIBM), said while replying to a query. He finds it not a good sign for the banking industry.
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