5 banks provision shortfall alarming

27 February 2014 Kazi Zahidul Hasan

Five banks have measurably failed to maintain their required provision against bad debts or loss of assets despite the central bank's relaxed policy on loan rescheduling, official sources said on Wednesday.
The cumulative provision shortfall of the banks--Bangladesh Commerce Bank, Shahjalal Islami Bank, Bangladesh Krishi Bank, Basic Bank and Rajshahi Krishi Unnayan Bank--reached Tk 2,334.50 crore as on December 2013, according to a statistics of Bangladesh Bank (BB).
As on December 2013, the provision shortfall of Bangladesh Commerce Bank was Tk 16.50 crore, Shahjalal Islami Bank Tk 130.10 crore, Bangladesh Krishi Bank Tk 1691.10 crore, Basic Bank Tk126 crore and Rajshahi Krishi Unnayan Bank 297.80 crore.  
The BB figure also showed that the all the banks kept Tk 24,984 crore as provision at the end of December 31 against the required amount of Tk 25,242 crore, showing a shortfall of Tk 257.73 crore. The shortfall was Tk 3,282 crore in the first quarter (July-September) last year.
"These banks have failed to meet up their required provisioning although the central bank offered a relaxed loan rescheduled facility for the banking industry in the wake of political turmoil," a senior BB official told The New Nation yesterday,  He said banks have to keep one to five per cent as provisioning against unclassified loans. Banks have to keep 20 per cent provision against sub-standard (SMA) loans, 50 per cent against doubtful loans and 100 per cent against Non-Performing Loans (NPLs).
"These banks have underestimated the potential losses incurred from various businesses and assets, causing shortfall in provisioning during the period under review," he mentioned. The BB official suggested that banks must find out ways to boost their capital and set aside the required provision shortfall against their default loans to ensure soundness of their financial health.
When asked, the provision shortfall of the overall banking sector came down significantly due mainly to central bank's relaxed loan classification guidelines.      
According to BB statistics, only five banks have failed to come up with their required provision at the end of December 2013 compared to ten banks as on September last year.   
As on September 2013, the provision shortfall of the state-owned commercial bank reached Tk 474.92 crore, but these banks managed to show Tk 1,454.23 crore provision surplus at the end of the December last year.
The state-owned commercial banks had to set aside Tk 10,7,79.13 crore for provision shortfall but they had been able to Tk 12,233.36 crore during the period under review.
Although the public commercial banks have showed surplus provisioning, however, the provision shortfall of the state-owned specialized banks stood at Tk 2,083.36 crore at the end of December last year.   
Conversely, private commercial banks had no shortfall. They had excess provision, showed the BB data. Private commercial banks had to keep Tk 9,478 crore provision against their bad debt at the end of 2013, but they had kept aside Tk 9,780 crore provisioning.     
The statistics showed that the foreign banks had to keep Tk 1,159 crore provision against bad loans at the end of December 2013 while they had been able to keep Tk1,229 crore against their required provisioning.
"We have asked the banks to cover up such deficiencies to avert future shock," the BB official, said, adding, a more prudent approach is needed to risk aversion and these banks will have to meet the gap by raising capital or restructuring their business."

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