The banking sector鈥檚 provision shortfall crossed Tk 1 lakh crore for the first time in December 2024, marking a staggering 337 per cent growth in just six months due to increased distressed assets in banks, especially in private commercial ones.
Bangladesh Bank data showed that the provision shortfall soared to Tk 1,06,130 crore at the end of December, up from Tk 55,378 crore in September and Tk 31,549 crore in June.
The scale of financial mismanagement and irregularities, long concealed under the previous Awami League-led government, is now becoming exposed after its fall on August 5, 2024.
The banking sector, already under pressure, is now grappling with massive non-performing loans that were previously masked through data manipulation.
The situation is particularly alarming for private banks, where the provision shortfall more than tripled in just three months, reaching Tk 48,883 crore in December from Tk 15,831 crore in September and Tk 14,086 crore in June.
These banks now account for 46 per cent of the total provision deficit.
The shortfall in state-owned banks skyrocketed to Tk 57,966 crore in December, five times higher than that of Tk 11,428 crore recorded in June. It was Tk 40,204 crore in September.
Banks are required to maintain a certain amount of provisions to cover bad loans. When they fail to do so, it results in a provision shortfall, exposing their inability to absorb financial shocks.
This persistent provision shortfall is a direct consequence of rising non-performing loans, weak capital buffers and poor loan recovery.
According to Bangladesh Bank data, defaulted loans in the banking sector surged by Tk 2 lakh crore in just one year, reaching Tk 3.45 lakh crore at the end of December 2024.
The NPL volume jumped to Tk 2,84,977 crore in September from Tk 2,11,391 crore in June, Tk 1,82,295 crore in March and Tk 1,45,633 crore in December 2023.
As of December 2024, about 20 per cent of total bank loans 鈥� amounting to Tk 17.11 lakh crore 鈥� was classified as non-performing, the highest ratio in South Asia.
Among private banks, defaulted loans crossed Tk 2 lakh crore in December, rising from Tk 1,49,806 crore in September. In state-owned banks, the NPL volume increased to Tk 1,36,618 crore from Tk 1,26,111 crore in the same period.
Regulatory requirements mandate banks to maintain provisions ranging from 0.5 per cent to 5 per cent for standard loans. However, for classified loans, the required provisions rise to 20 per cent for substandard loans, 50 per cent for doubtful loans and 100 per cent for bad or loss-category loans.
These provisions are supposed to come from bank profits, but with mounting NPLs, many banks are unable to meet the requirement, experts said.
The inability to maintain provisions underscores a deep-rooted crisis fueled by unchecked loan irregularities, corruption and regulatory failure, they said.
Years of reckless lending, often politically influenced, have created a financial black hole that threatens stability, they added.