Private sector credit growth declined for the second consecutive month in April but remained well above the central bank projected limit, thus nullifying banks owners’ claim of liquidity crisis.
Year-on-year private sector credit growth stood at 17.65 per cent in April this year, according to a latest BB statement released on Thursday.
The growth rate, however, is yet to come down within the central bank’s target of 16.8 per cent for the second half of the fiscal year 2017-18.
The credit growth rate was 17.93 per cent in March.
The central bank after its failure to keep private credit growth within its projected 16.3 per cent during the first half of the 2017-18 fiscal set an enhanced growth target for the second half.
In the ongoing fiscal, the credit growth was above BB estimation in each month so far, while the growth was below 17 per cent for only one month — 16.94 per cent in July 2017.
Asked about the reason behind the higher credit growth against BB’s projection, former advisor to the caretaker government Mirza Azizul Islam told New Age, ‘It is central bank’s inconsistent policy that was keeping private sector credit growth above its target.’
On the one hand, the central bank was projecting lower credit growth and on the other, allowing banks with additional funds from the cash reserve ratio (CRR) and giving more time to adjust the advanced deposit ratio (ADR). Therefore, the banks were giving more loans to their clients, said Islam, also former chairman of Bangladesh Securities and Exchange Commission.
He also suspected that a portion of such loans might be laundered abroad ahead of the national polls or would be used in the elections.
Bangladesh Bank officials said that preventing banks’ aggressive lending in apprehension that such loans might turn into classified ones within a very short time was another reason behind the central bank’s moves to reduce credit flow.
To control the aggressive lending, the central bank immediately after its monetary policy statement in January this year instructed banks to reduce the ADR.
The central bank asked the conventional banks to cut the ADR by 1.5 percentage points to 83.5 per cent from 85 per cent and the income deposit ratio (IDR) for Islamic banks to 89 per cent from 90 per cent.
The deadline, however, was extended twice from June this year to March next year mainly due to the banks demand in this regard.
Besides, the sudden rise in lending rate from around 7 per cent to above 15 per cent in a number of banks due to their desperate move to avail deposits for the adjustment of the ADR within the BB set deadline.
After the instruction to adjust ADR, BB amid pressure from the bank owners reduced banks’ CRR by 1 percentage point to 5.5 per cent from 6.5 per cent.
Besides, the central bank also allowed the banks to get higher amount of funds from government entities to contain the liquidity crisis.
The BB data also showed that the outstanding private sector credit stood at Tk 8.81 lakh crore at the end of April this year.
It also showed that the total domestic credit growth was 14.37 per cent in April with the total amount standing at Tk 9,72,474 crore.
The government sector credit was negative by 14.92 per cent while other public sector credit growth was 14.72 per cent.
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