BB goes soft on Sonali Bank’s provision shortfall

Grants to keep provision in phases

A file photo shows the headquarters of Sonali Bank at Motijheel in Dhaka. Bangladesh Bank has granted a Sonali Bank’s application to maintain its (Sonali Bank) provision shortfall of Tk 1,666.38 crore in three phases between 2015 and 2017 as the state-owned bank has failed to keep the required provision against its regular and defaulted loans. — New Age photo

A file photo shows the headquarters of Sonali Bank at Motijheel in Dhaka. Bangladesh Bank has granted a Sonali Bank’s application to maintain its (Sonali Bank) provision shortfall of Tk 1,666.38 crore in three phases between 2015 and 2017 as the state-owned bank has failed to keep the required provision against its regular and defaulted loans.

Bangladesh Bank has granted a Sonali Bank’s application to maintain its (Sonali Bank) provision shortfall of Tk 1,666.38 crore in three phases between 2015 and 2017 as the state-owned bank has failed to keep the required provision against its regular and defaulted loans.
Sonali Bank issued a letter to the BB on December 24, 2015 requesting it to allow keeping the provision shortfall in the three years between 2015 and 2017 as its capital shortfall stood at Tk 2,015 crore as of September 30, 2015.
The SBL said it would get a huge respite if the central bank allowed it to keep the provision in the three phases.
The SBL will also be able to increase its required capital if the central bank relaxes its provision rules, according to the Sonali Bank letter.
The SBL requested the BB to keep 20-per cent provision for 2015, 40-per cent provision for 2016 and 40-per cent for 2017 against the shortfall amount of Tk 1,666.38 crore.
The central bank, however, asked the bank to keep 30-per cent provision for 2015, 35-per cent provision for 2016 and 35-per cent per cent provision for 2017.
The central bank issued a letter to the SBL last week in this regard.
The state-owned bank also requested the BB to relax keeping the provision against unclassified loans
on the basis of High Court orders.
A number of businesspeople earlier filed writ petitions with the High Court to show their defaulted loans as unclassified credits and secured stay orders.
Due to the High Court stay orders, a number of defaulted loans have become regular loans, but the BB asked the banks to keep provision against the loans in line with the central bank regulations.
The banks have to keep 100-per cent provision against the unclassified loans which was earlier plunged in the defaulted loans on bad category.
The SBL requested the BB to allow it to maintain provision against unclassified loans on the basis of the High Court orders between 2015 and 2017.
The BB earlier asked the SBL to keep the provision against the loans between 2014 and 2016.
The BB asked in its last letter to the SBL to maintain 33.33-per cent provision in three phases between 2015 and 2017.
Sonali Bank managing director Pradip Kumar Dutta told New Age on Monday that the SBL had a huge amount of capital shortfall and it would increase more if the required provision had to be maintained right now.
‘We have to keep more capital in the coming days in accordance with BASEL III guidelines. So, we requested the central bank to relax the provisioning rules for us’.
As per the BB regulations, banks have to keep 0.50-per cent to 5-per cent provision against general category loans, 20-per cent provision against classified loans of sub-standard category, 50-per cent provision against classified loans of doubtful category and 100-per cent provision against classified loans of bad or loss category.
After keeping the provision and capital with the balance sheet and paying corporate tax to the government, the banks are allowed to enjoy net profit.
The central bank, however, has started a culture to rebate the banks to keep the provision instantly meaning that they (banks) take permission from the BB to keep the provision later.
Banks have to keep required amount of provision to mitigate financial risks. Banks sanction and disburse loans to their clients from the depositors’ fund, so they (banks) have to keep the provision for the interest of their depositors.

Source: New Age

LEAVE A REPLY

Please enter your comment!
Please enter your name here