The Financial Express

Fall in credit growth

BB retreats from move to cut banks’ ADR

| Updated: September 18, 2019 14:27:16

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The front view of Bangladesh Bank seen in this undated FE photo The front view of Bangladesh Bank seen in this undated FE photo

The central bank has backtracked from its previous decision of slashing the banks' advance-deposit ratio (ADR) in order to help them invest more for achieving expected economic growth by the end of this fiscal year (FY), 2019-20.

Under the revised decision, the ADR remains unchanged at 85 per cent for all the conventional banks and at 90 per cent for the Shariah-based Islamic banks, according to a notification, issued by the Bangladesh Bank (BB) on Tuesday.

As a result, more than 40 scheduled banks, out of 58, will be able to invest substantially in different sectors, including the share market, as they (banks) have already brought down their ADR to 83.50 per cent in line with the BB's previous instruction.

The central bank earlier re-fixed the ADR at 83.50 per cent and 89 per cent for the conventional banks and the Islamic banks respectively. These rates were scheduled to come into effect from September 30.

On January 30, 2018, the central bank slashed the ADR limit to help check any possible liquidity pressure on the market due to the banks' 'aggressive' lending.

"We've taken the latest decision on the banks' ADR limit, considering different issues, like - reduction in their cash reserve requirement (CRR)," a BB senior official told the FE while replying to a query.

The central bank on April 03, 2018 slashed the CRR to 5.50 per cent from the previous 6.00 per cent on daily basis, but the bi-weekly average has to be 5.50 per cent in the end.

The BB's latest decision came against the backdrop of a falling trend in the private sector credit flow growth in the recent months, mainly due to liquidity pressure on the market.

The private sector credit growth came down to 11.26 per cent in July 2019 on a year-on-year basis from 13.20 per cent in this January, the central bank's data showed.

The growth was 1.94 percentage points lower than the BB's target of 13.20 per cent for the first half (H1) of this FY. It was targeted at 14.80 per cent for the H2.

"Following the BB's latest decision, most of the banks will be able to provide more loans in different sectors that will help the country achieve 8.20 per cent GDP (growth domestic product) growth by the end of FY 20," another central banker explained.

Bankers also welcomed the BB's latest decision, saying it will help them increase credit growth, particularly to the private sector, in the near future.

"The private sector credit growth may increase slightly in the near future following the BB's latest decision," Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh (ABB), told the FE.

Mr. Rahman, also managing director (MD) and chief executive officer (CEO) of the Dhaka Bank Limited, said interest rates on deposit may fall in the coming months, mainly due to the unchanged ADR limit.

"It's a positive move of the central bank," said M A Halim Chowdhury, MD and CEO of the Pubali Bank Limited.

The senior banker also said now the banks will be able to provide more loans, as the pressure on the banking sector for deposit will ease following the BB's latest instruction on the ADR limit.

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