Bangladesh Bank raises banks’ ADR

Staff Correspondent | Published at 12:00am on September 18, 2019

Bangladesh Bank on Tuesday increased the mandatory advance deposit ratio by 1-1.5 percentage points for banks, giving them relief ahead of the deadline for implementing downsized ADR amid liquidity shortage.

The central bank raised the ADR ratio for conventional banks to 85 per cent from 83.5 per cent, which means that they can now lend 85 per cent of their advance including deposit.

The limit on investment deposit ratio for the Islamic Shariah-based banks was also increased by 1 percentage points to 90 per cent, a BB circular issued on Tuesday said, adding that the new limit would come into force immediately.

A number of banks, which were struggling to maintain ADR at 83.5 per cent, will have to maintain it at the newly set limit and by the deadline.

The change in stance of the central bank came in the apprehension that the banking sector might face volatility ahead of the cut-off date for the execution of ADR adjustment, September 30 this year.

In January, 2018, the BB had asked all the traditional banks to lower ADR by 1.5 percentage points to 83.5 per cent from 85 per cent by December, 2018, while Shariah-based banks were asked to bring down the IDR to 89 per cent from 90 per cent.

Forced by the money market volatility, the central bank twice extended the deadline, which was initially set on December 31, 2018.

Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman told New Age on Tuesday, ‘We appreciate the BB move in the context of increasing deposit rate as several banks are hunting for fund ahead of the ADR adjustment deadline.’

‘The move might have taken based on the change in scenario and would save the market form an anticipated volatility,’ he said.

The improved liquidity situation in the banking system as the government’s fund collection through the sales of national savings certificates dropped significantly in the current fiscal year of 2019-2020 also prompted the central bank to ease the policy, a senior BB official told New Age on Tuesday.

Due to the government’s tax measures in the fiscal year 2019-2020, the net sales of NSCs fell by 57.10 per cent to Tk 6,091.33 crore in July against Tk 5,034.74 crore in the same month last year.

Besides, the government’s borrowing from the BB against treasury bills and bonds also helped the central bank inject local currency in the market, the BB officials said.

The BB sold $2.31 billion and $2.34 billion in the fiscal year 2017-2018 and 2018-2019 respectively in the market. The sales resulted in local currency deposits in the central bank locker and now the BB is releasing the money against its sales of treasury bills and bonds to the government.

The improvement in trade balance situation also supported the bank sector situation betterment, the BB official said.

In line with the trend seen in last fiscal year, country’s trade deficit dropped by 15.6 per cent to $979 million in July, the first month of the fiscal year 2019-20, against $1.16 billion in the same month of FY 2018-19.

In FY19, trade deficit fell by 14.76 per cent to $15.49 billion from the record $18.18 billion deficit in FY18.