Banks get 6 months more to implement new ADR

Staff Correspondent | Published: 00:05, Feb 21,2018


Bangladesh Bank on Tuesday extended the deadline by six months to December 31 for banks to cut their loan-deposit ratio in line with the new threshold set by the central bank amid concern over a liquidity shortage in the financial market.
To free up banks’ liquidity, the central bank also reduced the required provision against all unclassified housing finance loans to one per cent from 2 per cent.
The BB on January 30 reduced the advance (loan)-deposit ratio 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 and asked the banks to adjust their existing ratio with the new rate by June 30, 2018.
Following the BB order, liquidity shortage in the financial market aggravated with the rise in interest rates as the banks squeezed money supply and scampered to collect deposit to adjust with the new BB order.
The BB in a circular on Tuesday set the new deadline of December 31, 2018 and also relaxed banks’ adjustment of new loans, commitments of which were given before January 31, 2018.
BB officials said the BB earlier set the reduced ADR to reign in aggressive lending by banks as some of the banks had gone beyond the rate set by the BB.
The new order on adjustment of new loans also allowed banks’ to go beyond
their existing ADR till December 31, 2018.
They said even before the new reduced ADR was set, there was strain of liquidity situation in the financial market because of higher import payments in the country and sudden rise in private sector credit growth.
After the BB set the new rate, the rates of interest of both loans and deposit have jumped by around 1-2 percentage points while business people started complaining about shortage of financing from banks for their projects as banks squeezed money supply to comply with the new BB rate.
The country’s capital market has also been going through a liquidity shortage because of the money market strain.
BB governor Fazle Kabir at a programme of Agrani Bank admitted that there was a liquidity shortage in the financial market.
Welcoming Tuesday’s BB circular, ABB chairman Syed Mahbubur Rahman told New Age that the extended six month time limit to comply with the BB’s new directive on ADR would help contain the extensive competition among the banks for deposits along with cool down the rapidly growing interest rate on deposit products.
Besides, it would also help banks keep relations with their existing clients in terms of keeping fresh loan commitments, he said.
The BB on Tuesday, in a separate circular, reduced the required provisioning against home loans.
‘With a view to promoting growth in the real estate sector through banks’ participation in housing finance, it has been decided that banks have to maintain one per cent general provision instead of two per cent against all unclassified housing finance loans under consumer financing,’ said a BB circular. 

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