National Bank leads as nine banks face Tk28,854cr provision shortfall

Nine banks grappled with a combined provision shortfall of Tk28,854 crore at the end of the September quarter, with National Bank Limited shouldering a substantial burden, according to the Bangladesh Bank.

The National Bank accounted for Tk13,797 crore, which is 47% of the total shortfall. This proportion underscores the lender's ailing financial health.

An analysis of central bank data further pointed out that the provision shortfall for these banks surged by Tk2,721 crore solely in the July-September quarter, with National Bank bearing 78% of this increase.

The lenders include state-owned Basic Bank, Agrani Bank, Rupali Bank, and private institutions such as National Bank, Bangladesh Commerce Bank, Dhaka Bank, Standard Bank, NCC Bank, and Modhumati Bank.

Bankers have noted that an increase in defaulted loans inevitably results in a rise in provisioning shortfalls, placing additional strain on the financial position of the National Bank. Irregular lending practices have impeded its loan recovery efforts, and the lender's difficulty in securing interbank loans further complicates the situation.

A National Bank official, speaking on the condition of anonymity, disclosed that the lender is struggling to repay its debts to various financial institutions. The bank's financial situation is severely strained by rising non-performing loans and provision shortfalls, stemming from its inability to attract sufficient deposits and recover loans from borrowers.

During the July-September quarter, among the other eight banks, the provision shortfall increased by Tk438 crore for Basic Bank, Tk101 crore for Rupali Bank, Tk135 crore for Agrani Bank, and Tk25 crore for Bangladesh Commerce Bank.

However, the provision shortfall decreased by Tk85 crore for NCC Bank and Tk41 crore for Dhaka Bank during the three months.

A senior central bank official attributed the widening provision shortfall to the surge in defaulted loans. In the September quarter, an increase in non-performing loans (NPL) of public and private banks, with the exception of Janata Bank, further widened the provision shortfall.

According to the central bank report, NPLs of private banks increased by Tk7,902 crore in the September quarter. Apart from Janata Bank, the NPLs of the remaining four state-owned banks have increased by Tk2,300 crore.

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.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS, "The country's banking sector is going through a kind of stress. As many borrowers have defaulted on their loans, the provision and capital shortfalls of banks are also increasing."

Actual provision shortfall around Tk79,000 crore

A total of 16 banks have utilised the deferral facility, amounting to more than Tk50,000 crore, in the central bank's special programme for a period of one to nine years. The majority of these facilities have been availed by state-owned banks.

Among these, National Bank has taken the maximum deferral benefit of Tk10,869 crore, followed by Janata Bank with Tk8,503 crore, and AB Bank with Tk6,245 crore. In essence, when the deferral amounts are calculated, the actual provision shortfall of the banks exceeds Tk79,000 crore.

Salehuddin Ahmed, a former governor of the Bangladesh Bank and renowned economist, emphasised the crucial role of adequate provisioning in safeguarding banks from capital shortfalls and ensuring the protection of customer deposits.

He cautioned that when a bank fails to maintain sufficient provisioning, it faces the risk of financial instability, potentially jeopardising depositors' funds.

Ahmed underscored the importance of banks maintaining a strong provisioning stance to safeguard the interests of their customers.