BB cuts ADR by 1-1.5pts to control aggresive lending

Bankers say BB move to result in interest rate hike

HM Murtuza | Published: 00:05, Jan 31,2018

 
 

Bangladesh Bank on Tuesday reduced banks’ advance-deposit ratio by 1-1.5 percentage points with a view to contain aggressive and risky lending, turning down the request from banks against such cut.
BB on Thursday issued a circular reducing the ADR for conventional banks to 83.5 per cent from 85 per cent and IDR (income deposit ratio) for Islamic banks to 89 per cent from 90 per cent.
BB said the banks would have to bring down the ADR in line with the latest directive by June 30.
It also asked banks to submit a work-plan on adjusting the ADR by February 7.
Central bank officials said the BB recently took the move to reduce ADR after it found a number of banks disbursed loans aggressively by going beyond the limit.
The platform for banks’ chief executive, Association of Bankers, Bangladesh, recently set a letter to BB requesting it not to cut the ADR this year considering the increased spending by the government for development in the election year.
BB governor Fazle Kabir on Monday said that at least 20 banks had crossed the ADR.
Bankers, however, said that the latest BB move would result in rate race among the banks for deposit collection, again resulting in rise in interests on both deposit and lending.
BB in the circular said that for the traditional banks, the investable amount of 80.5 per cent, after deducting cash reserve ratio and statutory liquidity ratio, will remain unchanged at 80.5 per cent.
But, the amount the banks’ boards can set with ADR by considering the capital-base, cash flow of the banks, inter-bank dependency and other related issue has been reduced to 3 per cent from 4.5 per cent earlier.
Similarly, for Islamic banks, the investable amount of 88 per cent, after deducting cash reserve ratio and statutory liquidity ratio, will remain unchanged at 88 per cent.
But, the amount the banks’ boards can set with IDR by considering the capital-base, cash flow of the banks, inter-bank dependency and other related issue has been reduced to 1 per cent from 2 per cent earlier.
‘A number of banks which are now compliant will become non-compliant due to the reduction of ADR,’ Association of Bankers, Bangladesh (ABB) chairman Syed Mahbubur Rahman told New Age.
There were two ways to bring the ADR down: bringing additional deposit and halting disbursement of loans which have been sanctioned already, said Mahbubur, also the managing director of Dhaka Bank Limited.
‘As the ratio has been reduced by 1.5 per cent, we will have to bring additional Tk 6,000 crore-Tk 8,000 crore in deposit to comply with,’ he said.
Like Dhaka Bank, other banks would also try to collect deposit to comply with the BB guideline and in doing so banks would start bidding with each other for fund, leading ultimately to hike in interest rate on deposit, ABB chairman said. Besides, national elections was a big factor as Tk 3,000- Tk 5,000 crore would be pulled out from the banking system for election spending, he said.
‘Unless or otherwise it was an election year, the situation could be manageable, but elections will make it much difficult to tackle,’ he said.
But, the amount the banks’ boards can set with ADR by considering the capital-base, cash flow of the banks, inter-bank dependency and other related issue has been reduced to 3 per cent from 4.5 per cent earlier. 

More about:

Want stories like this in your inbox?

Sign up to exclusive daily email

Advertisement

images

 

Advertisement

images