Provision shortfall stands at Tk 202 billion in 8 banks

Provision shortfall stood at Tk202 billion in first quarter of the running calendar year (January-March) in 8 commercial banks of the country, according to latest statistics of Bangladesh Bank (BB).

The banks include three state-owned banks, which face provision shortfall equivalent to Tk116.70 billion, four private banks with Tk Tk85 billion shortfall and two specialized banks Tk33 million shortfall.

According to the BB data , the total provision shortfall amounts more than 55 per cent is concentrated in the three state-owned banks alone.
Of the scheduled commercial banks the private National Bank faces the highest shortfall, failing to keep provisions of Tk74.68 billion against its classified loans following closely, state owned Basic Bank experiences the second-highest shortfall at Tk45.79 billion with the third-highest being Tk40.10 billion for another state owned Agrani Bank Limited.

Apart from National Bank among other private banks Bangladesh Commerce Bank's shortfall is at Tk3.6 billion, Dhaka Bank at Tk4.97 billion and Standard Bank at Tk1.6 billion.
 
On the other hand the cumulative shortfall for all banks stands deducting the surplus provision stands at Tk163 billion.

While the situation seems dire for most banks, there are exceptions also. Among the state-owned banks, Sonali Bank stands out as it has managed to keep a surplus provision of Tk13.27 billion.

Similarly, six private banks have reported surplus provisions, with Prime Bank Limited leading the way at Tk7.58 billion and Pubali Bank securing the second spot with Tk4.06 billion.

Foreign commercial banks have not reported any provision shortfalls, indicating a more robust financial position in comparison to their local counterparts.

When contacted a senior baker working in a private bank said these provision shortfalls and higher classified loans have significant implications for the banking sector.

Banks with a larger volume of classified loans face higher risks of default, resulting in financial losses and reduced lending capacity.

Moreover, insufficient provisions to cover potential loan losses further strain a bank's financial stability. Such challenges put tremendous pressure on a bank's assets, including its loan portfolio, securities, collateral, real estate, and other financial assets, he said.

As the quality of the loan portfolio deteriorates, banks may face potential write-offs, which negatively impact profitability.

Additionally, the value of securities and investments may decrease, affecting the overall capital position of the bank, he said and added collateral associated with classified loans might experience a loss in value, necessitating write-downs.

Consequently, the bank's asset quality, profitability, capital adequacy, and ability to withstand economic downturns become compromised.

Addressing these challenges will require banks to allocate resources for loan recovery, raise additional capital, and undergo regulatory scrutiny the senior banker said requesting anonymity.

Md. Mehmood Husain, managing director and chief executive officer of the National Bank Limited said, "We sought time from the Bangladesh Bank to build up provisions with a big time but the central bank is allowing us a single year basis time and we are trying our best to cover it by reducing our non performing loans."

"We are giving drive to recover our non performing loans which will ultimately reduce our required provisions", he said.

Another retired banker in anonymity said, "I wonder how with such huge provision shortfall the financial statements are being approved by the authority."

He said for further monitoring and assessment before approving the banks' who balance sheets.