Lower loan-deposit ratio to affect economy: Bankers

The central bank's planned move to slash the loan-deposit ratio ceiling to 80.5 percent from existing 85 percent will hurt the banking industry and the economy at a time when it is on a high growth trajectory, bankers said.

Additional deposits of Tk 20,000 crore to Tk 25,000 crore would be needed if the Bangladesh Bank revises the ratio downwards, said the Association of Bankers, Bangladesh in a letter on January 14.

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

At present, commercial banks are not allowed to invest more than 85 percent of their deposits; Islamic banks and the Islamic wings of commercial banks can invest up to 90 percent of their deposits.

The central bank may cut the ratio to 80.50 percent for conventional banks and 88 percent for Islamic banks, BB Deputy Governor SK Sur Chowdhury told reporters earlier in January after a meeting at the central bank headquarters in the capital. 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.

“We are concerned that banks in order to be compliant with the new (anticipated) guidelines will solicit new deposits albeit at significantly higher cost than their existing rates,” the ABB said.

Given that no new money will be injected in the system, the deposits will move from low interest rates to higher rates, from one bank to another.

This will then force banks to increase the interest rate on lending and deposits, putting an upward pressure on inflation, the ABB said.

All customers including exporters, SME and corporate may be in serious financial crisis if the central bank revise the ratio now.

“It will be difficult for banks to manage the situation, especially during an election year,” the ABB said.