Banks' fund management comes under close watch

BB issues dos and don'ts directives

Siddique Islam | Wednesday, 10 January 2018

Scheduled banks' fund management came under close supervision as the central bank issued Tuesday directives on wholesale borrowing (WB) and commitment for maintaining a sound asset-liability balance.
Under the new provisions, the banks will have to submit their statements on WB and commitments to the Bangladesh Bank on fortnight and monthly basis.
The first and second statements on WB have to be provided to the Department of Offsite Supervision (DOS) of the central bank in three working days after end of each fortnight to update the regulator on their financial health.
On the other hand, the statement on commitments has to be submitted to the DOS of the BB by the fifth day of the following month, according to a circular issued by the Bangladesh Bank on Tuesday, in the wake of a plethora of not-so-healthy developments in the banking circles.
The banks will have to submit both the accounts on their operational status in prescribed formats to the BB with the managing director and chief executive officer of the bank concerned undersigning these twin statements, it added.
"We want to strengthen our monitoring and supervision regarding the asset-liability management of the banks," a BB senior official told the FE while explaining the main objective of the directives.
He also said: "It will be helpful for the banks to manage their funds properly."
The latest BB moves came against the backdrop of raising trend in credit growth outstripping that of deposit in the recent months, exposing fund mismatch that may result in tight liquidity situation in the banking sector in the near future.
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, according to the BB officials.
All-bank deposit growth was 13.13 per cent on December 31, 2016.
On the other hand, 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. Much of the money went for financing fuel oil, consumer items including food grains and capital machinery.
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, they added.
The advances-deposit ratio (ADR) of all banks rose to more than 75 per cent in November from 74.85 per cent as on October 12, 2017. It was 71.85 per cent as on December 31, 2017.
The central bank of Bangladesh had earlier set the safe limit of ADR at 85 per cent for conventional banks and at 90 per cent for Shariah-based Islamic banks.
The financial parlance WB covers call borrowing, short-notice deposit from banks and financial institutions, placement received with maturity in less than 12 months, commercial papers/similar instruments and overdrawn Nostro-accounts.
Under the existing provisions, the WB limit will be capped at 80 per cent (for non-PD banks) and 100 per cent for (PD banks) of a bank's eligible capital on fortnightly average basis with maximum two deviations (not more than 90 per cent and 110 per cent of the eligible capital for Non- PD (primary dealer) and PD banks respectively) in a particular fortnight.
The eligible capital determined under Basel-III for any quarter will be applicable as eligible capital until it is determined for the next quarter.
The bank's commitments include undrawn portions of continuous loan including interest thereon and undrawn portions of term loans, outstanding irrevocable letters of credit (LCs) and similar instruments, letters of guarantee, acceptances and similar instruments.
However, the commitment limit will be fixed considering three important ratios: total commitments to total assets, total commitments to total eligible capital, and total commitments to total high-quality liquid assets (HQLA).
The highest acceptable limits of these ratios are less than 50 per cent, less than 500 per cent and less than 250 per cent respectively, according to the Asset-Liability Management (ALM) guidelines, issued by the BB on March 07, 2016.
The commitment limit will be the lowest amount of the three ratios, it added.

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