Bangladesh Bank has reduced the private sector credit growth target to 16.5 per cent for the second half (January-June) of this fiscal year (2018-2019) after missing its projection of 16.8 per cent for the July-December of the fiscal year.
The central bank, however, expected that 16.5 per cent growth in the private sector credit would be enough to support the government’s budgetary target of 7.86 per cent gross domestic product growth for FY19.
The actual private sector credit growth was 13.3 per cent in the first half of FY19 due to political uncertainty and anxiety before the December 30 national elections, BB governor Fazle Kabir said while unveiling the monetary policy statement at a press briefing held at the BB headquarters in Dhaka.
As all the programmes have already resumed after the elections, private sector credit growth would increase gradually in this half of FY19, he said.
Mentioning that the MPS was consistent with the budgetary targets, Policy Research Institute of Bangladesh executive director Ahsan H Mansur told New Age that he was sceptical about the attainment of monetary policy target due to deteriorating capacity of the financial sector to grow.
‘There is not enough liquidity in the market to support accelerating private sector credit growth along with the declining trend of M2 to GDP ratio,’ he said.
As a result, banks’ capacity is not improving as per the expected rate, the PRI executive director said.
Two major reasons for the present state of banks are negative state of net foreign asset, a major source of liquidity, and fund drainage through national savings certificates, Mansur said.
The existing deposit growth rate of around 10 per cent would not be sufficient for the attainment of desired credit growth in the private sector, he said.
Besides, irregularities and non-performing loans are the other major reasons for banks’ reduced capacity, he added.
In the MPS, the public sector credit growth target has been revised upward to 10.9 per cent for the second half of FY19 while the target was 8.6 per cent for the first half.
The actual credit growth in the public sector was 13.3 per cent in July-December due to the government’s extensive move to implement annual development programme before the elections by borrowing funds from banks.
Replying to a question whether banks had adequate capacity to finance the private sector ahead of the implementation of new advance deposit ratio by March this year, Fazle Kabir said that banks now held Tk 79,324 crore in excess liquidity and the majority of them already had allowable ADR limit.
Average ADR in banks was 77.37 per cent at the end of December last year while only eleven banks are yet to adjust ADR, he said.
Speaking about the devaluation of the taka against the dollar, the BB governor said the devaluation happened due mainly to the existing phenomenon in the world.
The devaluation would encourage exports and the expatriates to send money to the country, he said.
On the implementation status of 6 per cent interest rate on deposit and 9 per cent on lending by banks, BB banking reform adviser SK Sur Chowdhury said that the decision was made by Bangladesh Association of Banks not the central bank.
However, it was a strategic decision of the government to support investment, Sur said.
‘The central bank is just monitoring it and we have found that lending rate of banks has already come down to 10 per cent whereas it was above 15 per cent several months ago,’ he said, adding that many of the banks even managed to bring down the rate to 9 per cent.
Echoing the finance minister AHM Mustafa Kamal’s view over the non-performing loans in the banking sector, Fazle Kabir said that the central bank had been giving intensive efforts to reduce non-performing loans.
He said that there was no way of increasing such loan instead it would decline gradually from now on.