'Cautious' BB policy slows down banks' credit growth

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Siddique Islam
The overall growth of bank credits witnessed a declining trend in recent months due mainly to the central bank's 'cautious' monetary policy stance, officials said Tuesday.
The deposit growth, however, maintained an almost static situation during the same period despite the inflationary pressure on the economy, which has further limited the scope for expansion of normal deposits with banks.
Credit growth, particularly in private sector, dropped by 16.68 per cent or Tk 4072.07 billion as of November 15 last from 20.11 per cent or Tk 4026.55 billion on August 16 this year.
The growth of bank deposit also declined by 19.37 per cent or Tk 5175.95 billion from 20.73 per cent or Tk 4978.50 billion, according to the central bank statistics.
"It's a correction in the country's banking sector," a senior official of the Bangladesh Bank (BB) told the FE, adding that the banks are now scrutinising closely loan proposals before sanctioning any fresh ones.
He also said the central bank was carefully monitoring the overall credit-deposit ratio (CDR) of banks to ensure stability in the country's financial sector through minimising their assets-liability mismatch.
The average CDR of all banks came down to 77.56 per cent on November 15 last from 79.93 per cent on August 16, the BB data showed.
"We expect that the declining trend of CDR may continue in the near future," the central banker said without elaborating.
Talking to the FE, a senior official of a leading private commercial bank (PCB) said the banks were now busy recovering loans, instead of sanctioning fresh credit, in line with the BB's latest loan classification, provisioning and rescheduling policies. "Higher call money rate has also discouraged the bankers to go for traditional lending," the banker said, adding that the average call money rate stood at 12 per cent in 2012.
"Most banks are still showing reluctance to purchase inland bills after the Hall-Mark loan scam. Such unwillingness also contributed to the decrease in credit flow to the private sector," he explained. Regarding deposit growth, the private banker said higher growth of inward remittances contributed to a stable growth of bank deposits in the recent months.
Bangladesh received $6.11 billion as remittance earnings during July-November period of the current fiscal year, registering a 24.17 per cent growth over the corresponding period of the previous fiscal.
The central bank earlier set the CDR at 85 per cent for the conventional banks, while it remains at 90 per cent for the Sharia-based Islamic banks.
"We've asked some banks, which have exceeded their CDR limit, to bring down the same within the required limit by December 31," another BB official said, adding that the central bank will take necessary actions against defaulting banks after the deadline.