Fifteen banks in Bangladesh are facing a massive provision shortfall as the banking sector’s non-performing loans (NPLs) continue to surge, putting further pressure on their financial health.

According to the latest data from Bangladesh Bank, the combined provision shortfall of 15 state-owned and private banks stood at Tk229,146 crore at the end of June. This is reportedly the highest provision deficit recorded in the country’s banking sector.

Of the 15 banks, five are state-owned, with a combined provision shortfall of Tk78,330 crore. Janata Bank has the highest deficit at Tk50,160 crore, followed by Agrani Bank with Tk12,338 crore, Rupali Bank with Tk10,753 crore, BASIC Bank with Tk5,047 crore and Bangladesh Development Bank with around Tk33 crore.

The remaining 10 private banks have a combined provision shortfall of more than Tk150,000 crore. Islami Bank Bangladesh has the largest deficit at Tk82,334 crore, followed by National Bank at Tk23,326 crore and IFIC Bank at Tk21,894 crore.

Other private banks with provision shortfalls include Bangladesh Commerce Bank Tk645 crore, Mercantile Bank Tk2,095 crore, NRB Bank Tk130 crore, NRBC Bank Tk820 crore, Premier Bank Tk11,971 crore, Union Bank Tk5,005 crore and Standard Bank Tk2,595 crore.

The sharp rise in bad loans has been identified as the main reason behind the growing provision deficit. According to Bangladesh Bank data, total outstanding loans in the banking sector stood at Tk18,50,595 crore at the end of June, of which Tk6,06,555 crore, or 32.78%, was classified as non-performing.

Economist Dr Zahid Hossain, former lead economist of the World Bank’s Dhaka office, said the core problem in the banking sector is the growing volume of default loans. Without bad loans, such a large provision shortfall would not have emerged, he noted.

He criticised repeated policy concessions for defaulters and allowing banks with provision shortfalls to pay dividends, saying such measures send the wrong signal and put depositors’ funds at greater risk.

He called for the withdrawal of harmful policy measures, stronger loan recovery and tougher action to contain default loans.

Banks are required to maintain provisions against loans according to their quality to protect depositors’ funds. Provision requirements range from 0.5% to 5% for regular loans, 20% for substandard loans, 50% for doubtful loans and 100% for bad or loss loans.

Banks with provision shortfalls are barred from paying dividends and may also face capital shortages if they fail to maintain the required provisions. This can gradually weaken their financial foundations.

Analysts said reducing NPLs and increasing loan recovery are essential to restoring stability in the banking sector. Without stronger action against irregularities and persistent defaulters, the provision deficit could widen further.