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BB plans cut in ADR as credit growth overshoots target

Siddique Islam | January 04, 2018 00:00:00

The central bank has planned to slash the limit of advance-deposit ratio (ADR) to help check any possible liquidity pressure on the market due to 'aggressive lending.'

The ADR of all banks is likely to be re-fixed at 80.50 per cent for conventional banks and at 88 per cent for Sharia-based Islamic banks. The existing ratios are 85 per cent and 90 per cent respectively.

The possible change in ADR was indicated at a meeting of the bankers, held at the central bank headquarters in Dhaka on Wednesday with Bangladesh Bank (BB) Governor Fazle Kabir in the chair.

The proposed revised limit of ADR is expected to be incorporated into the next monetary policy statement (MPS). The MPS is expected to be announced at the end of this month, officials said.

The BB's latest move came against the backdrop of credit growth at higher rate than that of deposit in the recent months as depositors feel discouraged from putting money in banks because of lower interest rates.

The growth in deposit, on a year-on-year basis, came down to 10.72 per cent as on October 12 from 10.88 per cent in the last of July 2017.

All banks deposit growth was 13.13 per cent in December 31, 2016.

On the other hand, the all banks credit growth rose to 18.05 per cent as on October 12 last from 17.16 per cent as on July 27 last. It was 15.32 per cent in December 31, 2016.

"We've already advised the bankers for taking effective measures from now on for implementation of the proposed ADR limit," SK Sur Chowdhury, deputy governor of the BB, told reporters after the meeting.

He also said some banks had already breached the existing ADR limit that may create pressures on the money market in future.

At least 12 commercial banks including the public ones have already crossed the safe limit of ADR, according to the BB's confidential report, prepared base on October 12 data.

"We may able to achieve at 7.40 per cent of gross domestic product (GDP) by the end of the ongoing fiscal year (FY) with 16-17 per cent credit growth to private sector," the deputy governor explained.

The growth in credit flow to the private sector rose to 19.06 per cent in November 2017 on a year-on-year basis from 18.63 per cent a month ago, according to the central bank's latest statistics. It was 15.61 per cent in January 2017.

Such credit growth has already crossed the target, set by the Bangladesh Bank (BB) in its outgoing MPS earlier.

Earlier on July 26 last, the central bank of Bangladesh projected in its first half-yearly (H1) monetary-policy statement for the current fiscal year (FY) 2017-18 that the private-sector credit would grow at 16.2 per cent in December 2017 and 16.3 per cent in June 2018 respectively.

The total outstanding loans with the private sector rose to Tk 8269.44 billion in November last from Tk 8126.80 billion in October 2017. It was Tk 6945.58 billion in November 2016.

However, the private sector credit growth has already increased significantly in the recent months due to higher trade financing for settling import payment obligations particularly for food grains, fuel oil and capital machinery.

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