Banks now can lend more as BB revises ADR calculation

The country's commercial banks have been empowered to lend more, as the central bank has revised the advance-deposit ratio (ADR) calculation formula relaxing their reserve requirement.
According to the revised formula, the banks are now eligible to add net investment in bonds, particularly in the subordinate ones, as their total time and demand liabilities to meet the ADR requirement.
Besides, the banks will have to maintain both cash reserve requirement (CRR) and statutory liquidity ratio (SLR) requirement with the Bangladesh Bank (BB) only for net investment in such bonds instead of the previous gross investment amount.
BB separately issued two circulars on Thursday, asking the chief executives of all the scheduled banks to maintain the revised formula on both ADR calculation and reserve requirement.
"We've revised our policies to reduce the cost of fund that held the banks to bring down their interest rates on lending to 9.0 per cent from the existing level," a BB senior official told the FE.
He also said such revision will help the banks to improve their liquidity inflow.
Currently, the banks have issued sub-ordinate bonds worth around Tk 140 billion to consolidate their capital base in line with the Basel-III framework.
However, their net investment in such bonds stood at around Tk 30 billion, according to another BB senior official.
He also said the banks will have to comply with all the key indicators, including ADR, under the asset-liability management (ALM) guidelines before sanctioning any fresh loan.
Talking to the FE, Mehmood Husain, managing director and chief executive officer (CEO) of NRB Bank Limited, said the latest measures of BB will help increase the banks' lending capacity.
Following the revision, the banks' net investment in the subordinate bonds will be considered as deposit in calculation of their ADR, the senior banker added.
The central bank earlier extended the deadline by three more months to implement the revised limit of ADR by the banks.
Under the extended timeframe, the banks having ADR above the re-fixed limit are allowed to implement the revised limit of ADR by March 31, 2019 instead of December 31, 2018.
The decision was taken at a tripartite meeting among the Ministry of Finance, BB and the Bangladesh Association of Banks (BAB) on April 01 to mitigate the liquidity crunch in the banking system.
On January 30, the central bank slashed the ADR limit to help check any possible liquidity pressure on the market due to the banks' 'aggressive' lending.
The ADR is re-fixed at 83.50 per cent for all the conventional banks and at 89 per cent for the Shariah-based Islami banks. The existing ratios are 85 per cent and 90 per cent respectively.
On February 20, BB extended the timeframe for the first time by six months to December 2018 for the banks to meet their revised ADR.
Following the extension of the timeframe, the banks having ADR above the re-fixed limit are allowed to implement the revised ADR limit by December 31 instead of the previously set June 30.

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