BB asks banks to send quality credit bids

FE Report | Published: July 22, 2014 00:00:00 | Updated: July 21, 2014 22:54:20

The central bank has asked the commercial banks to be more cautious in sanctioning fresh loans for ensuring discipline in their lending procedure.
"You (bankers) should send quality credit proposals to your respective board and try to adopt strategies, so that you can resist undue pressure from the board regarding sanctioning of loans," Bangladesh Bank (BB) Governor Atiur Rahman said while addressing a bankers' meeting Monday.
The BB's latest warning came against the backdrop of recent rise in financial irregularities in sanctioning loans in different commercial banks.
At the meeting, the central bank also advised the bankers to take help from the BB, if necessary, for ensuring good governance in the country's banking sector.
"Whatever the magnitude of irregularities is, it must be mentioned in your audit reports," the central bank chief mentioned in his written speech.
He also said it will not be possible to check recurrence of irregularities, if the bankers continue to make mistakes, and the BB goes for actions thereafter.
"Now there is little scope to escape actions, as the central bank has strengthened its monitoring and supervision, adopting latest information technology," Dr. Rahman explained.
Ali Reza Iftekhar, chairman of Association of Bankers, Bangladesh (ABB), urged the bankers for taking effective measures to reduce the volume of non-performing loans (NPL) in the country's banking sector.
"The volume of NPL must be reduced," the ABB chairman told reporters after the meeting.
Mr Iftekhar, also managing director and chief executive officer of Eastern Bank Limited, said the NPL not only affects the banks' reputations, but it also affects their financial capability.
The ABB's appeal came against the backdrop of rising trend in the NPL in the first quarter of the current calendar year.
The volume of default loans increased by 18.70 per cent to Tk 481.72 billion in the January-March period of 2014, from Tk 405.83 billion in the previous quarter of the last calendar year, the BB data showed.
Different issues, including implementation of the Bank Company (Amended) Act 2013, enhancing the private sector credits, and reduction of lending rates for industries, were also discussed at the meeting.
"We've advised the bankers for taking effective measures to increase credit flow to the private sector," said BB deputy governor SK Sur Chowdhury, while briefing reporters after the meeting.
He said the central bank also advised the bankers to bring down the interest rate spread below 5.0 per cent from the existing level of 5.22 per cent.
The weighted average spread between lending and deposit rates, offered by the commercial banks, rose to 5.22 per cent in May from 5.14 cent in the previous month, the BB data showed.
The central bank earlier asked the commercial banks to keep the interest rate spread at less than 5.0 per cent, except in case of operations relating to credit cards and small and medium enterprises (SMEs).