BB may ask banks to invest more in productive sectors

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Siddique Islam
The central bank is likely to ask the commercial banks to make fresh investment in productive sectors at reduced lending rates for offsetting the impact of the global economic meltdown.
The suggestion will be made during a bankers' meeting to be held at the central bank today (Tuesday) with Bangladesh Bank (BB) Governor Salehuddin Ahmed in the chair, officials said.
"We'll discuss the role of commercial banks in helping export-oriented sectors affected by the global economic recession," a senior official of the Bangladesh Bank (BB) told the FE Monday.
The banks will be advised to gear up fresh investments particularly in the productive sectors to offset any long-term impact of the global financial meltdown, he added.
Besides, the meeting will discuss possible policy supports to facilitate the affected sectors, including readymade garment (RMG), textile, frozen food and jute, the BB officials said.
Under the policy support, the central bank may relax the existing loan rescheduling rules and single borrower exposure limit for the affected export-oriented industries.
Currently, rescheduling requires 10-50 per cent down payment on the overdue loan.
The BB earlier re-fixed the limit on large loans of single borrower exposure by 15 per cent of respective banks' equity to improve risk management in the banking sector.
The single borrower exposure limit on large loans has already been reduced from 50 per cent to 35 per cent that includes 15 per cent funding facilities.
"We may provide policy support to the exported-orient sectors considering their various recommendations to face the global recession," another BB official told the FE.
He also said the commercial banks have to reduce their interest rates on lending for strengthening fresh investments in different sectors.
The central bank has already given signal to the banks for reduction of their interest rates on both deposit and lending through slashing its interest rates on repurchase agreement (repo) and reverse repo, the central bank officials said.
Besides, the interest rates on Treasury Bills (T-bills) were slashed Sunday following a spurt in investment in government approved securities.
The demand of such securities has sharply increased because of a swell in the excess liquidity of some banks and a subsequent fall in credit flow to the private sector, according to the treasury officials.
"We want that the interest rate spread would bring down to 3.0 per cent from the existing 5.0 per cent in the near future. Lower interest rates on lending will help banks to boost their investment" the BB official said.
The overall inflow of remittances from the European Union (EU), particularly the United Kingdom (UK), will be discussed at the meeting aiming to sustain the flow from the region.
The central bank took the latest move against the backdrop of a downward trend in flow of remittances from the UK in February last, the central bank officials said.
In February last, the flow of inward remittances from the EU and the United States (US) declined slightly following the ongoing economic recession.
The inflow of remittance from the UK decreased to $54.72 million in February from $67.54 million in January while the flow of remittance from Italy came down to $11.81 million from $16.20 million, the BB data showed.