Bank lending pro rata with deposit has been on a decrease for low investments and lower growth in imports, analysts say to indicate a slowdown in different economic fields.
The industry advances-to-deposit ratio (ADR) decreased to 78.51 per cent at the end of June 2023 from 79.0 per cent at end-December 2022, according to Bangladesh Bank's latest report.
Private commercial banks (PCBs) maintained a higher ADR than the industry average, but state-owned commercial banks or SCBs and foreign commercial banks (FCBs) had lower ADRs.
As per a latest order of the central bank, banks have to maintain advances-to-deposit ratio at 87 per cent for conventional banks while 92 per cent for Islamic banks with effective since April 15, 2020.
Banks maintaining ADR of 87 per cent means they can lend Tk 85 against a deposit of Tk 100.
The loan-deposit ratio is used to assess a bank's liquidity by way of comparing a bank's total loans to its total deposits for the same period.
If the ratio is too high, it means the bank may not have enough liquidity to cover any unforeseen fund requirement. Conversely, if the ratio is too low, the bank may not be earning as much as it could be.
Bankers and economists view that import remained tightened which resulted in a falling trend in the loan-to-deposit ratio. They argue that private-sector credits did not rise during the period, so the lower amount of denominator impacted the ratio.
Syed Mahbubur Rahman, managing director and CEO at the private commercial bank MTB PLC, says LC (letter of credit) growth remained low so the overall loan-to-deposit ratio stayed down.
(LCs are very much important for the banking industry," the banker told The Financial Express, meaning that financial tightening as an austerity measure squeezed imports of consumer and capital goods in low-pace economic activity.
Mr Rahman mentions the state of lending and deposit receipt as industry average, with some exceptions, though. "There are many banks which have breached the set target while some remained lower."
He notes that the state-owned banks usually remain much lower than the target.
Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, told the FE that the deposit growth still remained slower mainly because of higher inflation coupled with lower wage rate.
"How can people save at a time when the economy is experiencing higher inflationary pressures?"
The economist also forewarns that credit growth may go down in the months ahead too if the higher inflationary pressure on the economy continued.
jasimharoon@yahoo.com