State-owned banks in Bangladesh have been using a special facility known as “deferral” to hide financial losses and present paper profits, a practice that has raised concerns over the long-term stability of the sector. Since 2015, irregularities and corruption within the banking system have worsened, particularly with business figures close to the ruling party exploiting their influence to withdraw billions from public banks. As a result, these banks have consistently been running at a loss, but by using deferral provisions, they have been able to report profits on paper, concealing the true financial reality.
The deferral facility, granted by Bangladesh Bank, allows these banks to avoid making provisions for bad loans and to declare dividends to shareholders, despite being in a state of financial distress. Moreover, they have also used deferral to postpone tax liabilities, further distorting their actual financial health. According to the latest data from Bangladesh Bank, six state-owned banks have utilised a total of BDT 90,000 crore in deferral provisions.
The central bank’s data shows that before announcing profits at the end of each financial year, banks are supposed to clear any provision shortfalls and meet their other financial obligations. However, state-owned banks have repeatedly sidestepped this requirement, instead opting for deferral arrangements of 5 to 10 years. This has allowed them to show profits year after year, even as their actual financial position deteriorates. As a result, these deferred liabilities have accumulated into a substantial figure over time.
As of December 2024, the total deferral liability of the six state-owned banks stood at BDT 89,508 crore. Of this, BDT 86,187 crore relates to provision shortfalls, while BDT 3,321 crore accounts for deferred tax assets. Essentially, these banks have been able to report profits on paper, even though they have been operating at a loss.
Among the six banks, Janata Bank has taken the largest share of the deferral provision, amounting to BDT 46,947 crore. This includes BDT 46,309 crore for provision shortfalls and BDT 678 crore for deferred tax assets. In total, Janata Bank alone has claimed nearly half of the total deferral benefit provided to state-owned banks. In second place is Agrani Bank, which has taken BDT 17,000 crore in deferrals, of which BDT 15,952 crore relates to provision shortfalls and BDT 1,049 crore to deferred tax assets. Rupali Bank, in third place, has claimed BDT 13,939 crore in deferrals, with BDT 13,881 crore for provision shortfalls and BDT 58 crore for deferred taxes.
The largest state-owned bank, Sonali Bank, has taken BDT 6,168 crore in deferrals, with BDT 4,632 crore for provision shortfalls and BDT 1,536 crore for deferred tax assets. Basic Bank, which has been the subject of much controversy due to loan frauds over the past decade, has taken BDT 5,258 crore in deferral, all of which is related to provision shortfalls. The smallest deferral amount was taken by Bangladesh Development Bank Ltd (BDBL), which has claimed BDT 155 crore in deferrals, entirely for provision shortfalls.
The total amount of risky assets held by these six banks reached BDT 371,981 crore by December 2024, with Janata Bank holding the largest share of BDT 118,557 crore. Agrani Bank follows with BDT 94,440 crore in risky assets. Other banks have similar large amounts of non-performing assets, which contribute to their financial instability.
Economists view the deferral system as a form of “economic cosmetics” that temporarily hides the underlying financial problems. While it may allow banks to show profits on paper, it does not address the real issues of capital shortfalls, irregular loan approvals, and the immunity of influential defaulters. In the long run, this practice weakens the banks’ financial foundation and puts the entire banking sector at risk.
M. Helal Ahmed Johnny, a research fellow and economic analyst at the Change Initiative, believes that the deferral system is a result of political pressure. “If the state-owned banks show losses, it could damage the government’s financial image,” he said. “Thus, this method of showing paper profits is used to maintain an illusion of stability. However, this approach poses a significant risk to the banking sector in the long term.”
He further added that it is crucial to end the deferral system now to ensure transparency regarding the actual financial condition of these banks. “In addition, banks must be restructured under professional leadership rather than politically-appointed boards. If the culture of showing paper profits continues, the state-owned banks will effectively become bankrupt within a few years.”
The situation calls for urgent reforms to restore the financial health of these banks and prevent further damage to the country’s banking sector. Without addressing the root causes of these financial irregularities, the deferral system is unlikely to provide a long-term solution to Bangladesh’s banking woes.