Central bank must restrain controversial moves

Business Report
The banking sector needs immediate reform to save it from major setback. The government is trying to use it at its will to secure big loans for mega projects bypassing the central bank’s regulatory authorities.
The finance ministry has set up a committee to review the central bank’s regulatory regime on bank loans and suggest how the existing central bank’s rules can be avoided in making loans to big project on the basis of bank-customer relation.
IN such situation recovery of loans may face difficulties. The fact is that a bank is not allowed to give loans beyond certain limit of its deposit for depositors’ safety and security of fund.
Most banks are now suffering from huge liquidity shortage as they are failing to recover huge defaulted loans to give new loans to business again. The private sector growth is facing big setback when the government is big borrowers from banks.
IN another move the central bank has taken a move to extend the loan classification period by three months in all three cases — from three months to six months, six to nine months and nine to 12 months. It is also contemplating extending loan rescheduling period from maximum five years now to 15 years.
Many believe when the banking system is starving from severe liquidity crisis such relaxation of rules on pressure from business lobbies is a bad signal. It will not serve good cause.
In another development, report said many banks are not bothering to maintain advance deposit ratio in the bank to protect depositors’ interest.
At least 20 banks are defying the central bank’s directive to adjust their advance deposit ratio (ADR) to ensure that depositors’ money is safe in those banks against excessive advance loans to parties that may destabilize banks at some points.
Bangladesh Bank (BB) issued a circular in January 2018 asking all commercial banks to adjust their ADR as loans by many of them were running above the permissible limits of their deposits.
Most banks carried out the new ADR suggested in the circular but at least 20 have so far failed to do it keeping the vulnerability of depositors unchecked. Former deputy governor of Bangladesh Bank Khondker Ibrahim Khaled said such vulnerability keeps the banks and depositors at risks.
He said he does not know why Bangladesh Bank is failing to secure compliance of those banks; It must use its authority without tolerating such failure, he said. Meanwhile some banks ADR has far exceeded the prescribed ratio to suggest they are moving towards further risks.
Senior banking officials said more advance against deposit in a bank may ultimately cause capital short fall in banks. Moreover difficulty in recovery of the loans may precipitate liquidity crisis to make new loans making banks, particularly the state owned banks dependent on their recapitalization regularly from budgetary resources.
Insiders said the central bank has warned those banks in June 30 last year and again in January this year to quickly act to readjust their advance-deposit ratio but of no avail. This time the central bank has given them time up to September to carry out the adjustment. .
It has fixed the new ADR ratio at 83.50 percent from 85 percent previously. For banks practicing Islamic banking the ratio has been suggested at 89 from 90 previously. But it appears many banks’ advance against deposits has significantly crossed the limit.
For example Islami Bank Bangladesh Limited reportedly has a deposit of around Tk 6000 crore while its advance loans was Tk 9000 crore in December last. The ratio at Exim Bank is 93.78 percent now as against 85.52 percent a year ago.
Union Bank’s ratio is 93 percent; First Security Islam Bank reports 92.68 percent, SIBL 91.46 percent and Al-Arafa Islami Bank 90.82 percent. Midland Bank ADR at 88 percent, NRB Bank 88 percent, Mercantile Bank 86.35 percent and Modhumoti Bank 85.06 percent.
BASIC Bank has far exceeded the ratio at 113 percent, Farmers Bank, now newly named as Padma Bank has the ADR ratio at 117 percent, National Bank 95.51 percent, AB Bank 91 percent IFIC 86.48 percent, NRB Global 86.28 percent, Shahjalal Islami Bank 90.32 percent.
Rajshahi Krishi Unnayan Bank’s ADR was 106 percent last year but slightly fell to 105 percent now. NRB Bank has 90 percent and Standard Bank ratio is at 85.65 percent. Ibrahim Khaled said the central bank should act quickly to remove the anomalies before too late.

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