Tk55,000cr provision shortfall in banking sector

As of September 2024, the total provision and security reserve deficit in the country's banking sector has stood at Tk55,378 crore.

Among these, the provision deficit in only six state-owned banks stands at Tk40,204 crore. At the end of June, the provision deficit of the banking sector was Tk 24,810 crore.

Accordingly, the provision deficit increased by Tk 30,568 crore in the span of three months. At this time, the provision deficit in six government banks increased by Tk 28,776 crore, throwing the depositors at risk.

This information has emerged in the latest report of Bangladesh Bank. According to the report, all the public and private banks have fallen into provision deficit. However, the overall provision deficit of foreign and specialized banks did not increase.

Sector experts say that the banks operating in the country are already burdened with high default loans. The news of provision shortage just came in this situation which will affect the net profit of the banks.

Provision Deficiency is the excess of financial liabilities over cash. That is, there is no obligation to have the amount of cash in the hands of any bank. At the same time, the amount of liabilities has increased.

As per norms, banks have to keep 0.5 to 5 percent of operating profit as provision against general category loans, 20 percent against bad loans and 50 percent against doubtful loans. Besides, there is a provision for each bank to set aside 100 percent provisioning against bad or loss category loans.

Industry insiders have always termed the provision shortfall as an ominous signal for the banking sector. The reason is the provision deficit reflects the weak financial position of the banks, which is mainly a result of high non-performing loans.

According to the report of Bangladesh Bank, most of the public and private sector banks are not able to keep sufficient amount of provision and safety reserve against good and bad loans.

Bankers say banks' provision deficits mean they are distributing profits and dividends to shareholders without protecting the interests of depositors. High non-performing loans are mainly responsible for the provision shortfall.

Economists say that the current condition of the bank will lead to more provision deficit. Because the defaulted loans are increasing day by day. Meanwhile, defaulted loans have increased recently, especially it has gone up in state-owned banks. Hence the provision deficit will increase. So it is necessary to keep 100 percent provision. Here one is related to another. If the provision increases like this, the banks will become weaker. In order to reduce the provision deficit, the defaulted loans must first be reduced. Lending should be done carefully so that the money is returned.

According to the central bank report, private sector commercial banks are second only to government banks in terms of provisioning deficit. At the end of June, the provision deficit of private sector commercial banks was Tk 14,085 crore. And at the end of September, the provision deficit of private sector commercial banks stood at Tk15,831 crores. Accordingly, the provision deficit has increased by Tk 1,746 crore in three months.

Next are the foreign banks. At the end of June, the provision deficit of foreign banks was Tk469 crore. And at the end of September, the provision deficit of foreign banks stood at Tk423 crore. Accordingly, the provision deficit of foreign banks decreased by Tk46 crore in three months.

Specialized banks are in the fourth position in terms of provision deficit. At the end of June, the provision deficit of specialized banks was Tk233 crore. And at the end of September, the provision deficit of specialized banks remained at the previous position.