Eleven state-owned and private banks are facing massive capital shortfall as they are failing to recover loans due to irregularities and mismanagement.
At the end of June, the banks had a shortfall of Tk25,385 crore, which rose to Tk27,917 crore by the end of September— an increase of 10% or Tk2532 crore in three months.
According to the people concerned, the banks disburse loans from customers' deposits. When that loan ends up as default, the provision has to be maintained at a specified rate as per the law. There is also an obligation to keep extra capital on bad debts.
However, due to inability to make good profits and increasing default loans, many banks have not been able to save capital for a while now, resulting in the capital shortfall.
Banks have to save capital considering the risks in light of the international banking policy Basel 3. Generally, a bank has to hold 10% provision against its total risk-based assets. Apart from this, according to Bangladesh Bank's guidelines, banks are instructed to keep capital at the rate of additional 2.5 percent as provisions.
According to Bangladesh Bank data, seven of the nine state-owned banks are in capital shortfall, which stands at Tk24,227 crore, of which Bangladesh Krishi Bank scored the highest shortfall – Tk12,144 crore. The second highest shortfall Tk2632 was recorded in Sonali Bank, which has been tainted with many talked about cases including the Hallmark scam.
The shortfall in Agrani Bank was Tk2,063 crore while it was Tk2352 in BASIC Bank. In Rajshahi Krishi Unnayan Bank, the capital shortfall was Tk1542 crore and in Rupali and Janata banks, the amounts were respectively Tk1676 crore and Tk1463crore.
The four private banks accounted for Tk3689 crore as capital shortfall, of which ICB Islami Bank had a shortfall of Tk1652 crore and deficit in the Bangladesh Commerce Bank was Tk1142 crore. Padma Bank, previously known as Farmers' Bank, had a shortfall of Tk539 crore while AB Bank logged Tk354 crore capital shortfall.
Speaking on the matter, former central bank governor, Dr Saleh Uddin Ahmed said, "The default loan is increasing in Banks. The Banks are facing capital shortfall as they are trying to maintain provision against the default loans."
The trend is more prevalent in state-owned banks, Dr Saleh said, adding that there is a lack of good governance inside these banks as they receive government funding and they are less bothered about accountability.
To reduce the shortfalls, according to the former central bank chief, the banks must bolster their efforts in recovering default loans.
"The banks also must improve their screening process for issuing new loans, to avoid having new defaulters," Dr Saleh recommended.
A total of 14 state-owned banks, including five commercial ones, took deferral benefits in 2020. These banks will not be able to pay dividends from now on without fully adjusting the deferral benefits.
From July to September, in three months, the defaulted loans in the banking sector have increased by about Tk2,000 crore.
At the end of June this year, the amount of defaulted loans was Tk99,205 crore while at the end of September, it jumped to Tk1,01,150 crore, which is 8.17% of the total loan disbursed.
In the first nine months of this year, the defaulted loans of the banking sector have increased by Tk12,416 crore. At the end of December last year, it was Tk88,734. At that time, defaulted loans were 7.66% of the total loans.