Muhith warns banks of black money in election year

Finance Minister AMA Muhith
Finance Minister AMA Muhith. File photo

Finance Minister AMA Muhith yesterday said black money may come into the market in the election year and has subsequently advised banks to be cautious when granting loans.

“Money will be in circulation a bit more this year, especially black money, as it is the election year. So you have to be cautious,” Muhith said at Rupali Bank's annual general meeting held at the capital's Osmani Memorial Auditorium.

In a parallel development, the Bangladesh Bank is likely to announce a lower ceiling for loan-deposit ratio of banks with a view to reining in the runaway loan growth rate in today's monetary policy statement.

At the end of last month, private sector credit growth stood at 18.13 percent, which is way past the target of 16.2 percent set by the Bangladesh Bank for the first half of fiscal 2017-18.

Banks' loan-deposit ratio too is grazing dangerously close to the ceiling of 85 percent for regular banks and 90 percent for Shariah banks.

“The loan-deposit ratio is higher than normal. It might have to be brought under control,” Muhith said, adding that the central bank will look into the matter. 

At the conference, Md Ataur Rahman Prodhan, Rupali's managing director, requested the finance minister to give the state bank Tk 900 crore to strengthen its capital base.

The bank's costs of opening letters of credit and providing guarantees are increasing due to its capital adequacy problem.

In response, Muhith said below-par capital adequacy is a banking sector problem.

Every year, the government provides funds to state banks to raise their capital adequacy ratio, much to the criticism from many quarters.

“Many raise questions that giving people's money to banks as capital is not right. No, it is right, because we cannot allow disaster to happen in a single bank in the sector.”

If any bank, even a small one, faces problem, it will destroy the entire banking sector.

“No government will let that happen and neither will this government.”

Next year too, funds will be kept aside for state banks' capital injection, he said, while assuring Rupali of funds.

In 2016, Rupali incurred a loss of Tk 87 crore but in 2017 it made a profit of Tk 537 crore, Prodhan said.

The bank's loss-making branches were brought down to 130 last year from 144 the previous year.

“Last year, our slogan was 'This was the year of turnaround'. And we have done that.”

Rupali's target this year was to become the number 1 bank, Prodhan added.