Thirteen banks faced a combined provisioning shortfall of Tk 10,971 crore in the second quarter of 2018 which not only exposed their worsening financial health but also raised the possibility of lending rate hike.
The banks are Sonali, Agrani, Rupali, BASIC, AB, Bangladesh Commerce, IFIC, Mutual Trust, First Security Islami, National, Premier, Social Islami and Standard, according to data from the Bangladesh Bank.
Some of the lenders have been facing the provision shortfall for a long time as they disbursed loans flouting rules, said BB officials.
First Security Islami Bank faced the provision shortfall for the first time in recent years.
A shortfall is an amount by which a financial obligation or liability exceeds the amount of cash that is available. The shortfall can be temporary, arising out of a unique set of circumstances, or it can be persistent, which may indicate poor financial management practices.
In the first quarter, the provisioning shortfall stood at Tk 10,596 crore at 12 banks.
As per the BB regulations, banks have to keep 0.50 percent to 5 percent provisioning against general category loans, 20 percent against classified loans of substandard category, 50 percent against classified loans of doubtful category, and 100 percent against classified loans of bad or loss category.
Banks have to keep the required provisioning from their operating profit, so they will raise the lending rates in the coming days to ensure profits, said Khondker Ibrahim Khaled, a former deputy governor of the central bank.
Banks, both public and private, have recently taken the decision to lower the interest rates on lending and deposits to 9 percent and 6 percent respectively – a move that will further erode their profit and provision base, he said.
The concern about the weakening financial health led banks to implement the rates partially breaking their own commitment in a bid to avoid provision shortfall and halt the declining trend of profits, he said.
“The single-digit interest rate is not fit for the country's banking sector right now as it has long been facing problems, stemming mainly from financial corruption,” Khaled said.
The decision to implement the single-digit interest rate will badly hit the banking sector in the days to come, said the former chairman of state-run Krishi Bank.
A BB official said the upward trend of default loans is largely responsible for the provision deficit.
At the end of June, default loans in the banking sector totalled Tk 89,340 crore, up 20.23 percent from six months ago. The capital base of the 13 banks will erode significantly if they kept provisioning as per the central bank rules, said a BB official.
The overall shortfall in provisioning against general and defaulted loans in the banking sector widened to Tk 7,990 crore in June, up from Tk 6,767 crore last December.