TDS Desk:

The steady rise in non-performing loans has sharply eroded the financial health of Bangladesh’s banking sector, with half of the country’s domestic banks failing to maintain mandatory provisions against defaulted loans.

Data from Bangladesh Bank show that 26 of the 52 domestic lenders did not keep the required loan-loss provisions, pushing the sector’s combined provisioning shortfall to nearly Tk344,231 crore.

The pressure has intensified rapidly. The overall gap has doubled in just six months, driven largely by state-owned banks and several private and Shariah-based lenders with high exposure to bad loans.

Mustafa K Mujeri, former chief economist of the Bangladesh Bank, said banks with elevated levels of non-performing loans were now under acute strain.

“Banks with higher NPL ratios are particularly vulnerable because their operating income is no longer sufficient to meet three obligations at the same time, paying interest to depositors, covering operating costs and maintaining mandatory provisions,” he said.

Mujeri attributed the widening shortfall to weak recovery of defaulted loans, prolonged leniency towards large borrowers and the long-standing practice of repeated loan rescheduling and write-offs.

“If this continues, depositor confidence will inevitably be undermined, posing a serious risk to financial stability,” he warned.

Under existing regulations, banks are required to maintain provisions ranging from 0.25% to 5% for regular or unclassified loans. Sub-standard loans require a 20% provision, doubtful loans 50%, and bad or loss loans 100%.

Despite the steady rise in defaulted loans over the years, many banks have failed to raise provisions in line with regulatory requirements, often relying on accounting adjustments and regulatory relaxations to contain reported losses.

Central bank figures show that by the end of the September quarter of the current year, five state-owned banks, 20 private banks and one specialised bank fell short of the required provisioning levels. Their combined deficit stood at Tk3,49,869 crore.

After adjusting for surplus provisions held by some lenders, the net shortfall across the banking sector amounted to Tk3,44,231 crore.

Private banks accounted for the largest share of the deficit, with 20 lenders posting a combined shortfall of Tk2,71,367 crore.

Five state-owned banks followed with a deficit of Tk78,243 crore, while one specialised bank recorded a gap of Tk259 crore.

By contrast, none of the nine foreign banks operating in Bangladesh reported any provisioning deficit during the period.

As of the September quarter, some banks across state-owned, private, and Shariah-based segments reported unusually high provisioning deficits. The list includes at least five banks allegedly affected by large-scale loan siphoning linked to the S Alam Group.

Islami Bank Bangladesh recorded the highest shortfall at about Tk82,094 crore, followed by the merged First Security Islami Bank with Tk52,569 crore. State-owned Janata Bank ranked third, with a deficit of Tk48,031 crore.

Other major shortfalls were reported by the merged EXIM Bank at Tk23,548 crore, Social Islami Bank Tk21,386 crore, Union Bank Tk15,256 crore, and Global Islami Bank at Tk8,881 crore.

Among conventional lenders, National Bank posted a deficit of Tk24,282 crore, IFIC Bank Bank Tk19,050 crore, Rupali Bank Tk13,073 crore, Agrani Bank Tk11,705 crore and Premier Bank Tk10,048 crore.

The other banks with provisioning gaps include BASIC Bank Tk5,393 crore, UCB Tk4,306 crore, Standard Bank Tk2,565 crore, Mercantile Bank Tk1,672 crore, NRBC Tk1,555 crore, AB Bank Tk1,490 crore, Southeast Bank Tk1,125 crore, Dhaka Bank Tk636 crore, Bangladesh Commerce Bank Tk615 crore,  NRB Bank Tk270 crore, Probashi Kallyan Bank Tk239 crore, Bangladesh Development Bank Tk40.35 crore, ICB Islamic Bank Tk7.43 crore, and NCC Bank Tk7.24 crore.

The rise in provisioning shortfalls coincides with a sharp increase in reported NPLs following regulatory changes.

Under the previous Awami League government, several borrower groups allegedly siphoned funds through loans taken in multiple names, often benefiting from concessions, while policy measures kept NPLs artificially low.

By the end of September last year, total NPLs stood at Tk6,44,515 crore, representing 35.73% of total outstanding loans.

After a change in government, Bangladesh Bank tightened loan classification rules in line with international standards, leading to a rapid increase in NPLs over recent quarters.