Four state-owned commercial banks (SoCBs) received Tuesday directives for largely lending to small and medium enterprises (SMEs), particularly manufacturing ones, rather than disbursing large loans.
Officials said the redirection of the public banks' credit operations came as a remedy for their growing risks of getting deeper into the problem of accumulating classified loans.
The public-sector banks have also been asked to improve their financial health forthwith through reducing the volume of classified loans.
The instructions were given at a meeting held at the central bank headquarters in the capital with Bangladesh Bank (BB) Governor Fazle Kabir in the chair.
The meeting was convened to review the progress in implementing memorandums of understanding (MoUs) and key financial indicators of the four SoCBs -- Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank.
The chief executive officers (CEOs)-cum-managing directors (MDs) of the public banks and four observers were present at the meeting.
"We've asked the SoCBs for taking effective measures immediately to reduce the volume of classified loans," BB spokesperson Shubhankar Saha told the FE.
Mr. Saha, an executive director of the central bank, said the central bank also advised the state-owned banks to take effective measures to expedite recovery of the classified loans through drives across the country.
The central bank's latest instructions came against the backdrop of a rising trend in overall non-performing loans (NPLs) in the banking sector, particularly in the SoCBs, in the first half (H1) of this calendar year.
The total amount of NPLs with six SoCBs rose to Tk 345.81 billion during the period under review from Tk 310.26 billion on December 31, 2016. It was Tk 357.16 billion in the first quarter (Q1) of this calendar year.
"We've also asked the SoCBs to improve their quality of services," the BB spokesperson said in reply to a query.
At the same meeting, the public banks were also directed to improve their internal controls and compliance in line with the BB advice for checking fraudulence and forgeries, the meeting sources said.
The central bank also instructed the SoCBs to take necessary measures to properly implement the existing core-risk guidelines to minimise their risks.
The BB earlier identified six core risk areas in the country's banking sector. The risk factors are: credit, asset and liability, foreign exchange, information technology, internal controls and compliance, and money laundering.
The meeting also reviewed various issues, including recovery position on default loans, liquidity situation, credit growth, operating expenses and cost of funds of the government banks.
The central bank had earlier signed the MoUs with the managements of the SoCBs for improving their financial performance by providing policy support.
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