Yet to be factors to reckon with
Wednesday, 22 October 2008
Shamsul Huq Zahid
The ongoing global financial market turmoil has forced central banks of most countries, developed or developing, to look closely at their respective home turfs. They want to be assured that their financial institutions, banks and non-bans, are safe and sound and are not over-exposed to loans that run the risk of becoming 'toxic'.
Back home from the country that triggered the current turmoil, the governor of the Bangladesh Bank (BB) had a meeting last Sunday with the bankers to review the situation of the local banks with regard to their exposure to lending to unproductive sectors. The financial trouble that has brought many giant commercial and investment banks in the USA and Europe to their knees did originate from reckless credit flows into housing and consumers spending.
It is obvious that the global financial turmoil of such great magnitude played in the back of the mind of the BB governor when he exchanged views with the bankers. But he sounded no panic. For he was aware of the fact that the country's banking sector is strong enough to stave off any external shock, thanks to the watchdog role played by the institution he is presiding over.
The message, it seems, the BB governor tried to convey to the banks that they should be careful in maintaining a healthy credit-deposit ratio, ensuring quality of their assets and exercising restraint in lending to 'unproductive sectors'. He cautioned all concerned that higher credit flows to 'unproductive sectors' might create an inflationary pressure on the economy.
The caution that was sounded by the governor might have come in the backdrop of recent media reports on substantial rise in the use of credit cards and consumers credit during the last financial year. The purchase through credit cards increased by 121 per cent during 2007-08 while growth of loans for the purchase of consumer goods, lands and flats increased by 93.3 per cent, 44.5 and 44.12 per cent respectively during the period. These loans are considered 'unproductive' ones. There are, however, a few more in the category.
The BB governor did not ask bankers to not to lend to 'unproductive' sectors. Yet he advised them to be cautious about the quality of loans while offering the same.
But the anxiety over the so-called unproductive loans seems to be a bit misplaced. The size of money given as advances to credit card users and to buyers of consumer goods, flats and lands is very negligible compared to the total lending by banks. Those, actually, do not deserve any mention.
According to the latest quarterly 'Scheduled Banks Statistics', published by the central bank, the total size of all advances made by all banks stood over 1600 billion as on December 31, 2007. The outstanding amount of loans to credit cardholders stood at Tk 4.26 billion or 0.27 per cent of the total advances made by banks.
The size of the credit given to consumers to buy cars, home appliances, electronic goods, computers etc., stood at Tk 39.78 billion, representing 2.49 per cent of the all advances. The loans for flat purchase stood at Tk 24.0 billion or 1.5 per cent of all bank loans.
Similarly, money given by banks as education, medical, marriage and land purchase loans was between 0.5 per cent and 0.27 per cent of all advances.
Trade-related loans constituted the major part of bank advances, 34.27 per cent followed by industrial lending (21.44 per cent) and farm credits (7.34 per cent).
The advice coming from the central bank to extend loans to the real sectors of the economy in greater volume and keep an eye on the asset quality is very much in line with its responsibilities as a regulatory body.
Yet credit cards-though many clients very often grumble about high rate of interest and charges levied annually, and consumer credits have become a part and parcel of the modern day living. These banking facilities do also help improve the living standard of citizens, particularly those belonging to the middleclass, and contribute to the growth of relevant industries and services sectors.
The volume of loans disbursed under heads, what are claimed to be unproductive, is well below the safe limit, if there is any. Even if the present volume goes up to a reasonable level, it is unlikely to create any destabilizing effect, in terms of inflation, on the economy.
Moreover, credit cards and consumer loans are far from becoming 'easy money' in Bangladesh because of their higher rate of interest and procedural requirements that are considered, in many cases, unfriendly to consumers.
The ongoing global financial market turmoil has forced central banks of most countries, developed or developing, to look closely at their respective home turfs. They want to be assured that their financial institutions, banks and non-bans, are safe and sound and are not over-exposed to loans that run the risk of becoming 'toxic'.
Back home from the country that triggered the current turmoil, the governor of the Bangladesh Bank (BB) had a meeting last Sunday with the bankers to review the situation of the local banks with regard to their exposure to lending to unproductive sectors. The financial trouble that has brought many giant commercial and investment banks in the USA and Europe to their knees did originate from reckless credit flows into housing and consumers spending.
It is obvious that the global financial turmoil of such great magnitude played in the back of the mind of the BB governor when he exchanged views with the bankers. But he sounded no panic. For he was aware of the fact that the country's banking sector is strong enough to stave off any external shock, thanks to the watchdog role played by the institution he is presiding over.
The message, it seems, the BB governor tried to convey to the banks that they should be careful in maintaining a healthy credit-deposit ratio, ensuring quality of their assets and exercising restraint in lending to 'unproductive sectors'. He cautioned all concerned that higher credit flows to 'unproductive sectors' might create an inflationary pressure on the economy.
The caution that was sounded by the governor might have come in the backdrop of recent media reports on substantial rise in the use of credit cards and consumers credit during the last financial year. The purchase through credit cards increased by 121 per cent during 2007-08 while growth of loans for the purchase of consumer goods, lands and flats increased by 93.3 per cent, 44.5 and 44.12 per cent respectively during the period. These loans are considered 'unproductive' ones. There are, however, a few more in the category.
The BB governor did not ask bankers to not to lend to 'unproductive' sectors. Yet he advised them to be cautious about the quality of loans while offering the same.
But the anxiety over the so-called unproductive loans seems to be a bit misplaced. The size of money given as advances to credit card users and to buyers of consumer goods, flats and lands is very negligible compared to the total lending by banks. Those, actually, do not deserve any mention.
According to the latest quarterly 'Scheduled Banks Statistics', published by the central bank, the total size of all advances made by all banks stood over 1600 billion as on December 31, 2007. The outstanding amount of loans to credit cardholders stood at Tk 4.26 billion or 0.27 per cent of the total advances made by banks.
The size of the credit given to consumers to buy cars, home appliances, electronic goods, computers etc., stood at Tk 39.78 billion, representing 2.49 per cent of the all advances. The loans for flat purchase stood at Tk 24.0 billion or 1.5 per cent of all bank loans.
Similarly, money given by banks as education, medical, marriage and land purchase loans was between 0.5 per cent and 0.27 per cent of all advances.
Trade-related loans constituted the major part of bank advances, 34.27 per cent followed by industrial lending (21.44 per cent) and farm credits (7.34 per cent).
The advice coming from the central bank to extend loans to the real sectors of the economy in greater volume and keep an eye on the asset quality is very much in line with its responsibilities as a regulatory body.
Yet credit cards-though many clients very often grumble about high rate of interest and charges levied annually, and consumer credits have become a part and parcel of the modern day living. These banking facilities do also help improve the living standard of citizens, particularly those belonging to the middleclass, and contribute to the growth of relevant industries and services sectors.
The volume of loans disbursed under heads, what are claimed to be unproductive, is well below the safe limit, if there is any. Even if the present volume goes up to a reasonable level, it is unlikely to create any destabilizing effect, in terms of inflation, on the economy.
Moreover, credit cards and consumer loans are far from becoming 'easy money' in Bangladesh because of their higher rate of interest and procedural requirements that are considered, in many cases, unfriendly to consumers.