According to the Bangladesh Bank, eleven commercial banks had a deficit of around Tk 15,000 billion in provisions or security reserves at the end of June.
Of these, the state-owned Janata Bank, BASIC Bank, Agrani Bank and Rupali Bank contributed the lion’s share of the deficit. You did not maintain sufficient bad loan loan loss provisions in the second quarter of the year.
At the end of March, the eleven banks had a shortage of more than Tk 12.649 billion in loan provisioning.
Among the private banks, the Bangladesh Commerce Bank, Dhaka Bank, Mutual Trust Bank, National Bank, Social Islami Bank, Standard Bank, and the specialized Bangladesh Krishi Bank were the ones with a lack of foresight.
People in the industry say that due to the ongoing third wave of the pandemic, loan repayment is still flexible. As a result, bad loans and default loans increase, but the banks cannot hold sufficient safety reserves against them.
The loans disbursed by banks are mostly depositors’ money, and the provision of safety reserves is designed to protect depositors from risk, the BB said.
Insiders say that credit collection is bad because of credit disbursement without scrutiny. In addition, flexible provisions have created an environment that encourages borrowers not to repay loans.
The lack of adequate provision can lead to a capital shortage.
According to the Central Bank, the loans disbursed up to March of this year amounted to a little more than 12.13164 billion Tk. Of this amount, default loans made up 8% of the total loans amounting to 99.205 Tk.
Since December last year, default loans have increased by more than Tk 10,000 billion.
Four government banks alone had a deficit of Tk 11,494 billion from the lack of credit provision. Janata Bank had the highest deficit.
At the end of June, Janata’s deficit was Tk 5,351 billion, followed by BASIC Bank (Tk 3,671 billion), Agrani Bank (Tk 1,526 billion) and Rupali Bank (Tk 943 billion).
Among the private banks, the Nation Bank had the highest deficit in security reserves – Tk 2,393 billion.
The BB said in a report that some banks had held more reserves than required, and the total reserves held through June amounted to around Tk 65,000 billion.
According to banking regulations, banks are required to hold provisions of between 0.25% and 5% of regular loans. For loans to small and medium-sized businesses, the minimum rate was kept at 0.25%.
In the case of poor quality loans, it is 20%, in the case of suspicious debt it is 50%, and in the case of bad loans, 100%.
The loan provision is made with funds from the bank’s income. When default credits go up but income does not grow much, it creates a void.
If a bank has a deficit in security reserves, it cannot distribute dividends to shareholders in accordance with the Bank Corporation Act.