The Bangladesh Bank (BB) slashed the limit of advance-deposit ratio (ADR) on Tuesday to help check any possible liquidity pressure on the market due to the banks' 'aggressive' lending.
The ADR is re-fixed at 83.50 per cent for all the conventional banks and at 89 per cent for the Shariah-based Islamic banks. The existing ratios are 85 per cent and 90 per cent respectively.
The banks must adjust it gradually by June 30, according to a notification, issued by BB on Tuesday.
The banks have been instructed to submit their specific action plans in this connection to the Department of Off-site Supervision (DOS) of the central bank by February 7, it added.
"We'll monitor the action plans to ensure implementation of the revised ADR directive within the stipulated timeframe," a BB senior official told the FE.
He also said BB has re-fixed the ADR considering different indicators, including inter-bank dependence, classified loan situation and capital adequacy of the banks.
The central bank's latest move came against the backdrop of credit growth at a higher rate than that of deposit in the recent months, as depositors are feeling discouraged from keeping money with the banks because of 'poor' interest rates.
"It will help bring an alignment between the existing credit and deposit growths," the central banker explained.
On January 04, the central bank hinted at a bankers' meeting that it had planned to slash the ADR to properly implement the Asset-Liability Management (ALM) Guidelines.
The growth in deposit, on a year-on-year basis, rose to around 11 per cent in November 2017 from 10.72 per cent as on October 12, 2017, according to the BB officials. All-bank deposit growth was 13.13 per cent on December 31, 2016.
On the other hand, credit growth, particularly in private sector, increased significantly in the recent months due to higher trade financing by the banks for settling import-payment obligations.
Much of the money went for financing import of fuel oil, and consumer items including food grains and capital machinery.
The all-bank credit growth rose to 19 per cent in November from 18.05 per cent as on October 12, 2017. It was 15.32 per cent in December 31, 2016.
The ADR of all banks rose to more than 75 per cent in November 2017 from 74.85 per cent as on October 12, 2017. It was 71.85 per cent as on December 31, 2016.
The central banker also said the adjustment of ADR will help increase the core deposit of the banks as well as ensure credit discipline in the country's banking sector.
"We understand the reasons behind reducing the ADR, and also appreciate giving us time by the central bank to comply with the directive," Syed Mahbubur Rahman, chairman of Association of Bankers, Bangladesh (ABB), told the FE.
"But the issue is here that this can be achieved either through brining more deposits or reducing lending."
He also said there are only a handful of large institutional deposits and everyone will approach them, and in the process the rate is going to go up. "We can already see it is happening even before this guideline came into being," noted Mr. Rahman, also Managing Director (MD) and Chief Executive Officer (CEO) of Dhaka Bank Limited.
Moreover, 2018 is the election year, and so there's a possibility that a sizable amount will be withdrawn from the banks. This will put further pressure on the banks, according to the ABB chief.
"If we cut down lending, the country's economic growth might get affected also. Let's hope that all things will remain under control," the senior banker added.
Talking to the FE, M A Halim Chowdhury, MD and CEO of Pubali Bank Limited, said some banks, which had disbursed loans aggressively, may face slight difficulties in revising the ADR.
"The interest rates on both lending and deposit have already increased following the hint to revise the ADR at the latest bankers' meeting," the senior banker noted.
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