The central bank has significantly cut provisioning against unclassified loans of all categories under consumer financing, excluding house finance aiming to expedite the flow of consumer loans in the banking system.
Now the scheduled banks will have to maintain 2.0 per cent general provision instead of 5.0 per cent earlier against such unclassified loans under consumer financing, according to a notification issued by the Bangladesh Bank (BB) on Tuesday.
In case of house finance, the required rate of general provision will remain the same at 1.0 per cent, it added.
"We've slashed the requirement of provisioning against such unclassified loans aiming to facilitate cottage, micro, small and medium enterprises (CMSMEs) through boosting consumer financing," Abu Farah Md. Naser, an executive director of the BB, told the FE while explaining the main objective of the relaxation.
Such relaxation will help banks reduce their cost of funds for loans under consumer financing, he added.
"We expect that the banks would encourage such financing with taking advantage of policy relaxation in near future," the central banker noted. The BB's latest move came against the lower private sector credit growth in recent months mainly due to the ongoing Covid-19 pandemic.
The growth in credit flow to the private sector stood at 9.36 per cent in August 2020 on a year-on-year basis against 9.20 per cent a month ago, according to the central bank's latest statistics.
This growth was 2.14 percentage points lower than the BB's target of 11.50 per cent for the first half (H1) of fiscal year (FY) 2020-21.
Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), welcomed the BB's latest move, saying that it will help boost retail loans in near future.
"Definitely, it will also help increase domestic demand that will contribute to bring a positive impact on the overall economic activities of Bangladesh," Mr. Rahman, also managing director and chief executive officer of Mutual Trust Bank Limited, explained.
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