Central bank likely to rein in lending by pvt banks
Sunday, 7 December 2008
Siddique Islam
The central bank has attached priority to ensuring the quality of loans as the credit flow to the private sector went up by 26.55 per cent in September over the same period of the previous year.
"We want to ensure the quality as well as the quantity of credit to the private sector," Chief Economist of Bangladesh Bank (BB) Mustafa K Mujeri told the FE Saturday.
He also said the central bank is constantly reviewing the credit flow to the private sector considering the country's overall economic performances.
The central bank took such a move after serious concerns were raised by the International Monetary Fund (IMF) about the quality of credit particularly among private commercial banks.
"....there are serious concerns about credit quality, especially among private banks, some of whom have been expanding their loan portfolios at annual rates in excess of 50 per cent," the Washington-based multilateral funding agency said in its a aide memoire that has been submitted to the authorities concerned of the government.
Credit to the private sector rose by 26.55 per cent to Tk 418.66 billion in September last from 15.79 per cent to Tk 215.07 billion of the corresponding period of the previous year, according to the central bank statistics.
Private credit growth in September continued to be high at 27 per cent with credit by the private commercial banks increasing by 38 per cent, according to the IMF document.
"Greater flexibility in the interest rates on government securities, in line with market conditions, will likely be needed to support BB's objective to reduce private sector growth to 18 per cent by June 2009," the IMF recommended.
The central bank officials, however, said the BB has already targeted the credit flow to the private sector at 18-20 per cent for fiscal 2008-09.
"We'll try to achieve the credit target by the end of June next," another BB official said without giving further details. But he hinted that the concern might be reflected in the next monetary policy scheduled to be announced January next.
Meanwhile, the central bank has intensified its monitoring by using various methods to ensure the quality of loans aiming to avoid financial risks in future.
The central bank has already asked the commercial banks to be cautious in lending by ensuring the quality of assets to avoid any financial risk.
On October 19 last, the BB governor at a meeting instructed the bankers to exercise caution in lending to non-productive sectors that may create an inflationary pressure on economy.
The growth in credit for buying goods through credit cards rose significantly by 121.05 per cent in June last from that of the corresponding period of the previous year while credit for purchasing consumer goods increased by 93.30 per cent.
During the period, marriage loans went up by 60.73 per cent compared with that of the same period of the previous year while flat purchase loans increased by 44.12 per cent, the BB data showed.
The central bank has attached priority to ensuring the quality of loans as the credit flow to the private sector went up by 26.55 per cent in September over the same period of the previous year.
"We want to ensure the quality as well as the quantity of credit to the private sector," Chief Economist of Bangladesh Bank (BB) Mustafa K Mujeri told the FE Saturday.
He also said the central bank is constantly reviewing the credit flow to the private sector considering the country's overall economic performances.
The central bank took such a move after serious concerns were raised by the International Monetary Fund (IMF) about the quality of credit particularly among private commercial banks.
"....there are serious concerns about credit quality, especially among private banks, some of whom have been expanding their loan portfolios at annual rates in excess of 50 per cent," the Washington-based multilateral funding agency said in its a aide memoire that has been submitted to the authorities concerned of the government.
Credit to the private sector rose by 26.55 per cent to Tk 418.66 billion in September last from 15.79 per cent to Tk 215.07 billion of the corresponding period of the previous year, according to the central bank statistics.
Private credit growth in September continued to be high at 27 per cent with credit by the private commercial banks increasing by 38 per cent, according to the IMF document.
"Greater flexibility in the interest rates on government securities, in line with market conditions, will likely be needed to support BB's objective to reduce private sector growth to 18 per cent by June 2009," the IMF recommended.
The central bank officials, however, said the BB has already targeted the credit flow to the private sector at 18-20 per cent for fiscal 2008-09.
"We'll try to achieve the credit target by the end of June next," another BB official said without giving further details. But he hinted that the concern might be reflected in the next monetary policy scheduled to be announced January next.
Meanwhile, the central bank has intensified its monitoring by using various methods to ensure the quality of loans aiming to avoid financial risks in future.
The central bank has already asked the commercial banks to be cautious in lending by ensuring the quality of assets to avoid any financial risk.
On October 19 last, the BB governor at a meeting instructed the bankers to exercise caution in lending to non-productive sectors that may create an inflationary pressure on economy.
The growth in credit for buying goods through credit cards rose significantly by 121.05 per cent in June last from that of the corresponding period of the previous year while credit for purchasing consumer goods increased by 93.30 per cent.
During the period, marriage loans went up by 60.73 per cent compared with that of the same period of the previous year while flat purchase loans increased by 44.12 per cent, the BB data showed.