Twelve banks faced a provisioning shortfall of Tk 10,596 crore in the first three months of the year, a development that will compel banks to hike their interest rate on lending to ensure net profits.
The banks are: Sonali, Agrani, Rupali, BASIC, AB, Bangladesh Commerce, IFIC, Mutual Trust, National, Premier, Social Islami and Standard, according to data from the Bangladesh Bank.
Some of the banks had faced provisioning shortfall for long as they continued to disburse loans flouting rules and regulations, said BB officials.
Mutual Trust and Social Islami faced provision shortfall for the first time in recent years.
Banks have to keep the required provisioning from their operating profit, so they will raise their lending rate in the coming days to ensure they declare profits, said Khondker Ibrahim Khaled, a former deputy governor of the BB.
“The banks will pass on the burden to borrowers.”
The rising trend of default loans is largely responsible for the provisioning shortfall.
At the end of March, the total default loans in the banking sector stood at Tk 88,589 crore, up from Tk 74,303 crore at the end of December 2017, according to data from the BB.
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 sub-standard category, 50 percent against classified loans of doubtful category and 100 percent against classified loans of bad or loss category.
The capital base of the 12 banks would 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 increased 17.59 percent to Tk 7,958 crore at the end of March from the previous quarter.
“This indicates that the banks are not in the pink of health,” Khaled said, adding that the interest hike on lending will be checked if the banks can avoid bad loans.
The banks that failed to keep the required provisioning would have to struggle to maintain profitability in the months to come, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a forum of the CEOs of private banks.
Like Khaled, he too said the borrowers would have to count the additional interest rate as the banks will be forced to hike the rate for ensuring profit.
Rahman, also the managing director of Dhaka Bank, hopes the banks would be able to turn around the situation.