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Private-sector credit squeezes as banks tighten belt

Strict compliance with ADR rules results in crunch

Siddique Islam | January 24, 2018 00:00:00

Credit to private sector squeezed in December after a preceding upturn as most banks tried to comply with strictly-enforced advances-deposit ratio (ADR) rules, bankers said.

"Banks were more focused on managing liquidity ratios than in increasing loan book so that numbers look better at the close of year," Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), told the FE while explaining the latest private-sector-credit-growth situation.

The growth in credit flow to private sector came down to 18.13 per cent in December 2017 on a year-on-year basis from 19.06 per cent a month before, according to the central bank latest statistics.

The private-sector-credit growth was 18.63 per cent in October 2017.

Besides, close monitoring by the central bank to minimise gap between advances and deposit growth also pushed down the flow of credit to the private sector during the period under review, according to the bankers.

The Bangladesh Bank (BB) has strengthened its monitoring and supervision since November last calendar year to improve deposit growth than credit one to help check any possible liquidity pressure on the market.

As part of the move, the BB blocked funds from current accounts of two private commercial banks due to none- compliance with ADR rules in the recent months.

Besides, the central bank of Bangladesh hinted at the latest bankers' meeting at slashing the limit of ADR to help check any possible liquidity pressure on the market due to 'aggressive lending.'

The latest BB moves to tighten belt came against the backdrop of raising trend in credit growth outstripping that of deposit in the recent months.

The growth in deposit, on a year-on-year basis, rose to around 11 per cent in November last from 10.72 per cent as on October 12, 2017. It was 13.13 per cent on December 31, 2016.

The all-bank credit growth rose to 19 per cent in November last from 18.05 per cent as on October 12, 2017. In was 15.32 per cent in December 31, 2016, according to the BB officials.

Senior bankers, however, said credit growth, particularly in private sector, increased significantly in the recent months due to higher trade financing by the banks for settling import-payment obligations particularly for financing fuel oil, consumer items including food-grains and capital machinery.

Such credit growth has already crossed the target, set by the central bank in its outgoing monetary-policy statement earlier.

Earlier on July 26 last, the central bank 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 8470.22 billion in December last from Tk 8269.44 billion in November 2017. It was Tk 7170.19 billion in December 2016.

"We've already advised the banks to invest more in the productive sectors than in less-productive ones to facilitate achieving maximum economic growth by the end of this fiscal," a BB senior official told the FE, without elaborating.

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