Higher non-performing loans (NPLs) along with a falling trend in interest rate spread put pressure on overall profitability in the country's banking sector in 2015, bankers said Thursday.
Large loan concentration and private sector foreign currency loan from overseas sources remain as major concerns for the banking sector, they added.
The commercial banks have also been forced to invest their excess liquidity in the government securities following lower demand for effective credit particularly in the private sector.
The amount of NPLs rose by more than 4.0 per cent to Tk 547.08 billion during the July-September period of last year from Tk 525.19 billion in the preceding quarter. It was Tk 546.58 billion in the quarter 1 (Q1) of 2015.
The share of NPLs also rose to 9.89 per cent during the period under review from 9.67 per cent three months back. It was 10.47 per cent in the Q1 of this year.
The central bank has already asked the commercial banks to take effective measures to reduce the volume on NPLs by intensifying recovery drives across the country.
"We expect that the amount of NPLs will decline to some extent in the fourth quarter of 2015," a senior official of the Bangladesh Bank (BB) told the FE.
He also said the banks have already been instructed to take necessary measures so that the amount of classified loans does not increase further.
On the other hand, the interest rate spread in the country's banking sector came down to 4.77 per cent in October last from 5.06 per cent in January 2015 as the commercial banks are slashing their leading rates to attract clients particularly corporate ones.
The weighted average rates on deposits came down to 6.58 per cent in October last from 7.26 per cent in January 2015 while interest rates on lending dropped to 11.35 per cent from 12.32 per cent, according to the central bank statistics.
"The falling trend in overall interest rate spread may continue in the coming months following sufficient excess liquidity with the banks," a senior official of a leading private commercial bank (PCB) told the FE.
He also said some commercial banks are now offering lending rate below 10 per cent to attract good-performing corporate clients recently to expedite their business activities.
Meanwhile, the overall excess liquidity with the commercial banks stood at around Tk 1.22 trillion as of November 26 last. But the major portion of the funds has been invested in the risk-free government securities, another central banker said.
He also said the excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 37 billion.
Private-sector credit growth increased slightly in October as the overall import payments moved up slightly following higher import of capital machinery.
The import of capital machinery or industrial equipment used for production rose by more than 106 per cent to $316.55 million in October last from $153.47 million in September 2015, the BB data showed.
The growth in private-sector credit rose to 13.22 per cent in October last from 12.88 per cent in September 2015. It was 12.69 per cent in August.
The central bank of Bangladesh earlier set the ceiling for private-sector credit growth at 14.30 per cent for the July-December period of the current fiscal year (FY) 2015-16.
The total outstanding loans with the private sector rose to Tk 5946.77 billion in October 2015 from Tk 5252.33 billion in the same month of 2014. It was Tk 5896.86 billion in September last.
Talking to the FE, another BB official said: "The overall credit growth is still at a satisfactory level if we consider the foreign-currency loans, taken by the corporate entities."
Currently, outstanding total foreign-currency loans stood at around US$8.0 billion, according to the central banker.
He also said the outstanding amount of foreign-currency credits includes loan extended by Offshore Banking Units of local and foreign commercial banks and direct borrowing by the corporate entities through the approval by the Board of Investment (BoI).
"It's a continuous process. But it has an exchange rate risk if the local currency depreciates against the US dollar in future," the private banker explained.
"We're encouraging long-term foreign currency borrowing instead of short-term one from overseas sources to avoid the exchange rate risk," the central banker said while replying to a query.
The private bankers also said large loan concentration is causing serious concern over ensuring stability in the country's banking system if it would not be addressed immediately.
Fund maturity mismatch may widen in future for implementation of large loan restructuring scheme for the first time in Bangladesh, they added.
The central bank has already cleared proposals of 10 business groups for restructuring their large loans worth Tk 140.48 billion.
The business groups which have received approval for restructuring their large loans include Beximco, Jamuna, Thermax, Sikder, Abdul Monem, Keya, SA (SA Oil Refinery and Samanaz), BR Spinning, AnonTex and Ratanpur.
Under the existing large-loan-restructuring policy, the borrowers are allowed to repay their restructured term loans for maximum 12 years while both restructured continuous and demand loans will be cleared within maximum six years.
© 2024 - All Rights with The Financial Express
