BB may raise private sector credit growth

Bangladesh Bank is set to raise the private sector credit growth target to about 17 percent for the second half of the fiscal year as it looks to help the government achieve 7.4 percent GDP growth.

The target for the first half of fiscal 2017-18 was 16.2 percent and it was expected that the target will be raised slightly to 16.30 percent in the second half's monetary policy, due to be announced today.

At the end of last month, private sector credit growth stood at 18.13 percent -- way past the target set for the period.

Subsequently, for the next six months, the central bank has decided to raise the target a little more to 17 percent in keeping with the higher demand for money supply in the market, a BB official told The Daily Star yesterday.

In another development, the central bank is likely to bring down the loan-deposit ratio ceiling to rein in the runaway loan growth rate, much to the disappointment of banks. The loan-deposit ratio will be 83 percent for conventional banks and 89 percent for Shariah-based banks, according to the BB official.

At present, commercial banks are not allowed to lend out more than 85 percent of their deposits and Islamic banks and the Islamic wings of commercial banks 90 percent of their deposits. 

The BB may issue a notice today instructing banks to implement the revised ratio from July this year, the official said.

Earlier on January 14, the Association of Bankers, Bangladesh wrote to the BB urging it to pull out of the planned move, which will hurt the banking industry and the economy at a time when it is on a high growth trajectory.

Additional deposits of Tk 20,000 crore to Tk 25,000 crore would be needed if the BB revises the ratio downwards, the letter said.

Subsequently, the ABB has sought 12 months from the BB to prepare for the lower ceiling.

More than 19 percent credit growth is unexpected for the private sector, so the central bank has decided to lower the ceiling to prevent banks from going for aggressive lending, BB Deputy Governor SK Sur Chowdhury told reporters earlier in January after a meeting at the central bank headquarters.

Earlier in December, the BB blocked Tk 76 crore of two banks with its account for the offence -- a move that sent a strong warning to all banks to curb their aggressive lending instincts.

“The loan-deposit ratio is higher than normal. It might have to be brought under control,” said Finance Minister AMA Muhith yesterday at the annual general meeting of Rupali Bank.

The central bank will look into the matter as this is the election year, he added.

The BB official said that central bank will announce fresh initiatives in today's monetary policy statement to beef up its monitoring on banks' credit disbursement with the view to ensuring the quality of credit.

The central bank will also discourage credit flow to less productive sectors, including consumer financing, in the near future for bringing down the inflation within the target.

The government as well as the central bank had set the inflation target at 5.5 percent for fiscal 2017-18.

Inflation stood at 5.70 percent in December last year from 5.64 percent a month earlier. It was 5.52 percent in December 2016.

BB governor Fazle Kabir will unveil the monetary policy today at the central bank headquarters in Dhaka in what will be his fourth policy statement since he took over the reins from Atiur Rahman in March 2016.