Dhaka, Bangladesh (BBN)– A total of fifteen banks failed to keep the requisite provisions against their loans, particularly the classified ones, in the last calendar year (2018).

The banks faced a combined provisioning shortfall of BDT 95.23 billion in 2018. In 2017, the provisioning shortfall stood at BDT 93.75 billion at nine banks, according to the central bank’s latest statistics

The 15 banks are Sonali, BASIC, Agrani, Rupali, AB, Dhaka, Bangladesh Commerce, Mutual Trust, National, Premier, Shahjalal Islami, Social Islami, Standard, Trust, and South Bangla Agriculture and Commerce Bank.

In 2017, nine banks failed to keep the requisite provisions against their loans. Of them, three were SoCBs, five PCBs, and the rest was development-finance institution (DFI).

In 2018, one SoCB and five PCBs were included in the list of such banks.

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.

“The rising non-performing loans (NPLs) are mainly liable for the provisioning shortfall,” a senior banker explained.

He also said the banks may decrease their provisioning shortfall through reducing classified loans or enhancing eligible collaterals against the credits.

However, the total amount of provisioning shortfall came down to BDT 66.14 billion as on December 31, 2018, from BDT 67.67 billion on the same day of the previous year. It was BDT 54.70 billion as on December 31, 2016.

“The overall provisioning shortfall decreased slightly in 2018, as most of the banks were able to make higher profit,” a senior official of the Bangladesh Bank (BB) explained.

He also said the banks earned higher profits from their ‘interest income’, as they had charged higher interest on their lending while providing lower interest rates on deposits in line with the decision of the Bangladesh Association of Banks (BAB).

Under the existing BB regulations, the banks have to keep 0.25 per cent to 5.0 per cent provisions against loans of general category, 20 per cent provision against substandard category, 50 per cent against doubtful loans, and 100 per cent against bad or loss category loans.

“The banks will have to maintain due provisioning against all types of loans to protect the interest of depositors,” another BB official said.

He also added the banks normally keep required provisions, against their unclassified and non-performing loans (NPLs), from their operating profits in a bid to mitigate financial risks.