Banks have got another six months to lower their advance-deposit ratio, a move that is expected to tame the current volatility in the money market.
In a circular issued yesterday, the central bank extended the deadline to September 30 this year to adjust the ratio. This is the third extension since January 2018.
Bankers welcomed the move, saying it would give some breathing space to banks to adjust the ratio without hunting deposits at higher cost. Banks will also get funds to disburse fresh loans, they said.
“This is a time-befitting decision as only four to five banks, out of 59, have been able to follow the central bank instruction on the ADR,” said M Kamal Hossain, managing director of Southeast Bank.
He said the private sector credit growth has stalled in recent months as banks had been preparing to lower the ADR by this month.
On January 30 last year, the central bank had set the June 2018 deadline to lower the ADR to 83.5 percent from 85 percent for conventional banks and to 89 percent from 90 percent for Shariah-based banks as part of efforts to control aggressive lending practices.
Less than a month later, the central bank had to extend the deadline to December 31, 2018. The second extension, up to March 31 2019, came in April last year, but it was too inadequate for many banks.
Accordingly, many banks have adopted a go-slow policy in disbursing loans, putting an adverse impact on the private sector credit growth.
Banks will have to submit their work plans within the first 10 working days every month on how they will bring down the ADR, according to the circular.
Bangladesh Bank could not but extend the deadline as 23 banks posted a higher ADR in the last week of January than the existing regulatory limit, a central banker said.
Private sector credit growth remained unchanged at 13.20 percent in January from the previous month, the BB data showed.
Prior to that, the credit growth faced a steep descent throughout last year as banks were forced to take a cautious lending stance to adjust the ADR. In December 2017, the year-on-year credit growth stood at 18.13 percent. The squeezing money supply also affected the stock market.
Many banks have recently offered more than 10 percent interest rate on fixed deposits, an indication that they are suffering from a liquidity shortage, said Hossain of Southeast Bank.
He expressed hope that yesterday's decision would push up the credit growth.
MA Halim Chowdhury, managing director of Pubali Bank, said the deadline extension would calm the recent volatility in the money market.
Banks will breathe a sigh of relief as the pressure for mobilising deposits will ease, he said.
In the last week of February, the BB had instructed banks to maintain statutory liquidity ratio and cash reserve ratio against the outstanding deposit of offshore banking operations, creating an additional pressure, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of bank CEOs.
The latest decision will give banks some relief from the current tight situation, said Rahman, also the managing director of Dhaka Bank.