Banks' consumer lending growth defies BB order

FRC investigation reveals

Jasim Uddin Haroon | Published: March 16, 2019 10:16:16 | Updated: March 16, 2019 16:03:13

Leading commercial banks provide consumer finance that surpasses the growth rate of banks' total lending violating the central bank instruction, according to an investigation.

In 2017, the Bangladesh Bank issued a circular, asking banks to provide consumer finance in such a way that the growth rate under consumer financing cannot go beyond that of total loans.

Consumer financing usually consists of credit cards, car loans, housing loans, marriage loans and "any purpose loans."

This type of financing raises the inflationary pressures on the economy, especially the headline inflation.

For this reason, the central bank encourages loans to productive sectors, which support economic expansion and employment creation.

The development involving the consumer lending came to light in an investigation conducted by the Financial Reporting Council (FRC), the auditors' watchdog.

The Council, which was formed in mid-2016, conducted the investigation on 10 commercial banks chosen randomly from 58.

It considered financial statements of two consecutive years for this study-2016 and 2017.

It included two multinational banks in the list along with leading local private banks. The state-owned commercial banks were kept out, however.

Council officials involved with the investigation told the FE that the banks did not categorise the "staff-loan" as consumer loan, although this is similar to consumer lending.

They said if the staff-loans, highest Tk 10 million each, are taken into account then the growth rate of the consumer financing will grow further.

In the investigation, the Council found consumer financing in eight banks exceeded the growth rate of their total loans.

One private commercial bank provided total loans amounting to Tk 203.43 billion in 2017, a rise of 16 per cent from a year earlier.

But its consumer financing stood at Tk 25.52 billion, nearly 42 per cent rise than the year before.

Similarly, a multinational bank funded a total of Tk 102.95 billion in 2017, an increase of nearly 28 per cent over 2016, but its consumer financing growth was nearly 32 per cent in 2017 over the corresponding year.

It, however, found that two second generation banks were below the red line in terms of consumer financing.

The watchdog is likely to bring the matter to the central bank's notice calling for actions.

"We may write to the Bangladesh Bank this week," said a senior official involved with the matter.

He also said: "We studied good banks and found most of them to be violating the central bank's instruction, and if we consider the poor performing banks then what picture will come out?

The compliance with the instruction is important as BB announces the monetary policy with the target of achieving GDP growth and containing the inflationary pressure on the economy.

The banking watchdog issued another instruction sometime in 2012 asking the commercial banks to raise the loans in productive sectors to attain economic goals.

The instruction also had warned the banks not to provide consumer loans in such a way that can exceed the growth rate of total loans.


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