Islamic banks’ reserve deficit rises to Tk 70,000 crore. The bank made a profit of 108 crore taka in the outgoing year due to the opportunity to delay the provision of this large deficit.
The bank has decided not to pay any dividends to investors for the past year due to its poor financial condition. The decision was made at a meeting of the bank’s board of directors on Tuesday.
Sources said that Islami Bank’s defaulted loans had increased to Tk 68,000 crore by the end of December, which is 42% of its total loans. In the information sent to Bangladesh Bank before the inspection, Islami Bank had shown less than half of its defaulted loans. As the actual amount of defaulted loans has come out, the amount of provisioning has also increased as per the rules. The report shows that the provision deficit of the bank’s Khatunganj branch in Chittagong alone stands at Tk 41,937 crore. Bangladesh Bank spokesperson and executive director Arif Hossain Khan told Samakal that the inspection revealed information about the accumulated irregularities of the Islami Bank over the past few years. This has exposed the bank’s huge amount of defaulted loans. The bank has applied for time to reserve provisions against these loans.
According to Bangladesh Bank sources, 20 of the 36 banks listed on the capital market have applied to the central bank for various benefits, including time to preserve provisions. However, Bangladesh Bank has not yet made any decision. A decision will be made on these banks, including Islamic ones, at once. To protect deposits, banks are required to keep a security reserve or provision at a fixed rate from their profits, considering the credit rating of all loans. Currently, the provision for regular loans is 1 percent. A 5% deposit is required against loans that are outstanding for up to three months, i.e., classified as a special mention account. And 100% provision must be made for bad loans that are overdue for more than a year. The rule is to keep this provision from the profits earned by banks or the capital provided by entrepreneurs. An increase in the provision deficit means an increase in the risk to depositors and a weakening of the bank’s financial base.
The December-based data submitted by Islami Bank to Bangladesh Bank shows defaulted loans of Tk 32,817 crore. This is 21.08% of the Tk 1,55,659 crore disbursed loans. However, the central bank’s inspection revealed another 32,899 crore taka of defaulted loans. The bank’s actual defaulted loans are 65,716 crore taka. This is 42.22% of the total loans.
In addition to the increase in defaulted loans, long-standing ‘unfunded’ liabilities have been ‘funded’ under the supervision of the central bank. Due to this, the need for reserve conservation has now increased significantly. According to the central bank’s final calculations, the bank will have to keep provisions of Tk 77,533 crore till December. The bank has reserved only Tk 7,717 crore. This has resulted in a deficit of Tk 69,816 crore.
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