The provision shortfall of eight banks – three state-owned and five private – increased to Tk26,132 crore at the end of June 2023, which bankers believe is due to mounting defaulted loans.
According to data from the central bank, the eight banks' provision shortfall soared by Tk5,974 crore in the April-June quarter.
Two private banks have plunged into provision shortfalls afresh, with Bangladesh Commerce Bank and NCC Bank reporting shortfalls of Tk516 crore and Tk119 crore in three months, respectively.
Referring to the nearly Tk25,000 crore increase in defaulted loans in the three months through June, bankers said the mounding of toxic loans forced many banks to make provisioning from their profits while others had to face provisioning shortfalls.
They said if banks don't get deferral facilities, the actual provision shortfall will be several times more.
The eight banks are National Bank, BASIC Bank, Agrani Bank, Rupali Bank, Bangladesh Commerce Bank, Dhaka Bank, Standard Bank, and NCC Bank.
As per the policy, banks are required to keep a provision of 0.50% to 5% against deposits. However, there are policies to keep provisions up to 20%, 50%, and 100%, according to the classifications of the defaulted loans.
A senior central bank official said one of the reasons for the increase in defaulted loans in the June quarter is that the toxic loans of several state banks have increased significantly. The state-owned Janata Bank's defaulted loans have doubled in a span of three months through June.
He also mentioned that a major exporting group obtained an EDF loan from Janata Bank and has not been repaying it for a considerable period. Consequently, the bank was compelled to show the loans defaulted, leading to an increase in its toxic debt.
In the banking sector, defaulted loans rose as the loan moratorium facility was lifted in April this year, and some export development fund (EDF) overdue customers showed default.
According to data from the central bank, the total default loan in the banking sector stood at Tk1,56,039 crore in June, which was 10.11% of the total outstanding loans.
The total default loan in the banking sector stood at Tk1,31,620 crore in March, which was 8.80% of the total outstanding loans. The loan outstanding was Tk15,42,655 crore at the end of June.
Defaulted loans and provision shortfalls are increasing at a time when the country's commitment is to keep its toxic loans below 5% according to international standards as a condition of a $4.7 billion loan package from the IMF.
The central bank also committed to the IMF that it will reduce average NPL ratios to below 10% for state-owned banks and below 5% for private banks by 2026.
Currently, non-performing loans in state-owned banks and private banks stand at over 25% and 6%, respectively.
TBS published a report titled "Secret behind banks' hefty profit" last August. It showed 16 banks enjoyed the deferral facility of more than Tk50,000 crore in the special facility of the central bank for a period of 1–9 years. Most of these banks are state-owned.
In this regard, Bangladesh Bank's former governor and economist Salehuddin Ahmed said that if the bank fails to maintain the necessary provisions, there is a risk of falling into a capital shortfall.
"This has a negative impact on banks. Deposits become risky. Banks need to ensure adequate provision for the protection of customer deposits," he added.