Credit outstrips deposit

Credit growth outshone deposit growth by 3.12 percentage points in 2008 calendar year, which is risky for banks, with credit growth in many private sector banks reaching 30 to 62 percent in the same period.
In 2008, deposit growth was 19.19 percent and credit growth was 22.31 percent.
A Bangladesh Bank (BB) report said the rate of credit growth is much higher than the rate of deposit growth in some banks, which is a "matter of concern". The report also said these banks took loans continuously from the call money market that reflects poor liquidity management.
The report also said analysis of the credit growth showed that more credit went to comparatively unproductive sectors than productive ones.
A bankers' committee meeting will discuss the report today.
However about the growth of deposit, NCC Bank Managing Director Nurul Amin yesterday told The Daily Star that after cyclone Sidr in November 2007 there was a huge inflow of remittance and foreign aid. As a result, many reconstruction works were done in the country. The increase in the economic activities in the country that time is a major reason of higher credit growth.
The NCC Bank MD said: "Deposit also grew due to the increased economic activities that time. In addition, banks introduced different attractive deposit schemes to augment their deposit."
A BB high official said: "To offset the losses caused by Sidr the banks distributed a huge amount of agricultural loan, which also contributed to the credit growth." He, however, said in 2008 three crops -- Boro, Aus and Aman -- yielded bumper harvest. The prices of the crops were also good leading to a higher consumption and increased business activities.
In 2008 remittance worth around $9 billion came to the country, while more than $2 billion foreign aid was received in the last fiscal year -- the highest ever in a single year.
Finance ministry sources said because of the onslaught of cyclone Sidr the donors gave more foreign aid in fiscal year 2007-08.
However central bank high officials said credit growth in some private banks was abnormal which the BB is investigating to see the status of the loans. This issue is also likely to be discussed today at the bankers' meeting, BB sources said.
The BB report compared credit statements on September 2008 and September 2007, which showed that the total credit growth was 26.43 percent.
The comparison also showed the credit in consumer sector was 35.92 percent, in trade sector 36.23 percent and the highest 60.35 percent in transport and communications sector. On the other hand, the growth in working capital was 10.11 percent, in industries sector 23.03 percent, in construction sector 22.59 and in agriculture, forestation and fisheries sector 16.98 percent.
Deposit of four state-owned banks increased by 8.44 percent, while credit rose by 10.36 per cent last year.
Of the four state-owned banks, the deposit of one bank dropped by 2.28 percent, while credit of another bank fell by 3.79 percent.
Deposit of the 30 private commercial banks increased by 26.12 percent in 2008, and credit went up by 30.93 percent. Of the banks, 16 banks' credit rose by 31 percent to 62 percent.
Deposit of nine foreign commercial banks went up by 16.76 percent, while credit increased by 10.33 percent.
Deposit of five specialised banks augmented by 19.17 percent and credit rose by 13.75 percent in the period.
Although some banks were suffering from liquidity crisis, the excess overall liquidity in banking sector stood at Tk 20,275 crore on December 31, 2008, which was Tk 13,672 crore on December 31, 2007.
The BB report said in 2008 the credit-deposit ratio of some banks (seven) increased from 85 percent to 98 percent, which is very risky, according to bank sources.