Banks should not expand credits by borrowing from money market: BB
Monday, 15 September 2008
FE Report
The central bank has advised the commercial banks to provide loan facilities to the productive sector from their own deposits rather than borrowing from the money market.
The advice came at the Bangladesh Bank's (BB) review meeting with chief executive officers of two private commercial banks (PCBs) held at the central bank Sunday with BB Deputy Governor Murshid Kuli Khan in the chair.
The central bank started consultation with different commercial banks from last week to know about their overall investment patterns, sources of funding, sectoral concentration of loans and latest position of the credit-deposit ratio (CDR).
"The banks will have to attract more deposits if they want to increase loans," a BB senior official told the FE, adding that there is no point in expanding credits by borrowing from the money market.
The BB took the move against the backdrop of a falling trend in deposit growth in the banking system that has marginally declined by 0.23 percentage point to 16.86 per cent in the fiscal 2008 (FY08) from that of the previous year.
In FY08, time deposits grew by 17.11 per cent to Tk 276.08 billion from Tk 233.14 billion in the previous fiscal while demand deposits declined by 15.14 per cent to nearly Tk 36.36 billion from Tk 37.34 billion of the previous fiscal, according to the central bank statistics.
On the other hand, the growth in credit flow to the private sector rose significantly by 25 per cent in FY08 from that of the previous fiscal.
Credit flow to the private sector rose by 25.18 per cent to Tk 379.62 billion in FY08 from Tk 197.98 billion of the previous fiscal, the BB's data showed.
The BB official also said the central bank has advised the commercial banks to discourage loans meant for the unproductive sectors and for import of luxury consumer goods aiming to achieve maximum economic growth and at the same time curb inflationary pressures on economy.
On 17 July last, the BB declared its monetary policy for the first half of fiscal FY09 that targeted a real gross domestic product (GDP) at 6.5 per cent and an average inflation rate at around 9.0 per cent in the fiscal 2008-09.
"We will subsequently meet at least 20 more commercial banks by the end of this month to discuss the issues aiming to strengthen our supervision for ensuring quality of loans," another BB official said.
He also said the central bank has started persuading the commercial banks from May this year to reduce their dependency borrowings by gradually mobilising deposits.
The banks have been asked to refrain from aggressive banking and improve efficiency by minimising their CDR, he added.
The central bank has advised the commercial banks to provide loan facilities to the productive sector from their own deposits rather than borrowing from the money market.
The advice came at the Bangladesh Bank's (BB) review meeting with chief executive officers of two private commercial banks (PCBs) held at the central bank Sunday with BB Deputy Governor Murshid Kuli Khan in the chair.
The central bank started consultation with different commercial banks from last week to know about their overall investment patterns, sources of funding, sectoral concentration of loans and latest position of the credit-deposit ratio (CDR).
"The banks will have to attract more deposits if they want to increase loans," a BB senior official told the FE, adding that there is no point in expanding credits by borrowing from the money market.
The BB took the move against the backdrop of a falling trend in deposit growth in the banking system that has marginally declined by 0.23 percentage point to 16.86 per cent in the fiscal 2008 (FY08) from that of the previous year.
In FY08, time deposits grew by 17.11 per cent to Tk 276.08 billion from Tk 233.14 billion in the previous fiscal while demand deposits declined by 15.14 per cent to nearly Tk 36.36 billion from Tk 37.34 billion of the previous fiscal, according to the central bank statistics.
On the other hand, the growth in credit flow to the private sector rose significantly by 25 per cent in FY08 from that of the previous fiscal.
Credit flow to the private sector rose by 25.18 per cent to Tk 379.62 billion in FY08 from Tk 197.98 billion of the previous fiscal, the BB's data showed.
The BB official also said the central bank has advised the commercial banks to discourage loans meant for the unproductive sectors and for import of luxury consumer goods aiming to achieve maximum economic growth and at the same time curb inflationary pressures on economy.
On 17 July last, the BB declared its monetary policy for the first half of fiscal FY09 that targeted a real gross domestic product (GDP) at 6.5 per cent and an average inflation rate at around 9.0 per cent in the fiscal 2008-09.
"We will subsequently meet at least 20 more commercial banks by the end of this month to discuss the issues aiming to strengthen our supervision for ensuring quality of loans," another BB official said.
He also said the central bank has started persuading the commercial banks from May this year to reduce their dependency borrowings by gradually mobilising deposits.
The banks have been asked to refrain from aggressive banking and improve efficiency by minimising their CDR, he added.