Dhaka, Bangladesh
Outstanding loans with pvt sector rises to Tk 10,531.51b

Outstanding loans with pvt sector rises to Tk 10,531.51b

News Report Outstanding loans with the private sector rose to Tk 10,531.51 billion in December from Tk 9,588.51 billion a year ago. It was Tk 10,358.15 billion in November 2019. Managing Director and Chief Executive Officer of NRB Bank Limited Mehmood Husain predicted that the falling trend in private sector credit growth would continue until April. He also said trade financing may fall further if the outbreak of coronavirus in China smolders on. China is the largest trading partner of Bangladesh. The senior banker said foreign trade-or export and import--with China has hit a bump in the aftermath of the epidemic that has so far killed more than 1,000 people in the world's second-largest economy, after the United States. Banking sector's credit growth fell to 9.83 per cent in December 2019 on a year-on-year basis from 13.20 per cent a year earlier, the central bank data shows. This growth was 3.37 percentage points lower than the central bank's target of 13.20 per cent for the first half of fiscal year 2019-20. Meanwhile, banks' excess liquidity has crossed the Tk 1.0 trillion-mark again, fuelled by lower private credit growth in a sign that the investment situation has cooled. Surplus cash surged by nearly 19 per cent to Tk 1,056.46 billion as on December 31, 2019 from Tk 889.50 billion three months before, according to the central bank's latest statistics. The amount was Tk 1,119.10 billion as on March 30, 2017. The country's banking sector has been saddled with excessive funds since the second quarter of 2019 as the private sector credit growth was slower, according to bankers. The amount rose to Tk 833.30 billion in the April-June period of the last calendar year from Tk 638.80 billion in Q1 of 2019. It was Tk 774.80 billion as on December 31, 2017. "There is no sign of excess liquidity in the banking system being ebbed, though the government continues to borrow from banks," said a senior officials of Bangladesh Bank. "The major portion of excess liquidity has already been invested in government securities as risk-free investments for banks," the central banker noted. More than 65 per cent of total liquid assets were invested in the government securities, known as unencumbered approved securities, until December 2019, which was 62.62 per cent in May last year, according to the central bank report on the liquidity position of banks. Meanwhile, global ratings agency Fitch warned the execution of an interest rate cap will pose "severe" downside risks to Bangladesh's financial stability. "We believe an eventual implementation of a blanket interest rate cap" agency adds in a report could also " worsen the risk of a run on deposits." The report titled "Industry Forecast-Interest Rate Caps Pose Severe Downside Risk to Bangladesh's Financial Stability" was published on Wednesday. It said the persistent pushback from private commercial banks over more than a year points towards an inability of the authorities to enforce the regulation. This suggests that the implementation of 9.0 per cent lending interest rate cap is likely to remain slow, fearing about the delay beyond April, it added. The ratings agency's views came as both the government and top bankers had agreed to bring down both lending and deposit rates to a single-digit from April 01. After a meeting with the chairmen and managing directors of private banks on December 30, finance minister AHM Mustafa Kamal announced the decision. "….while the actual implementation timeline is uncertain, we believe that authorities would eventually tighten its grip on the industry and push through this initiative so as to continue propelling real GDP (gross domestic product) growth above 8.0 per cent following an 8.2 per cent growth rate in FY 2018-19," it noted. The Fitch also said capping interest rates would restrain the ability of banks to adequately price in such risks, amid poor lending practices and a weak bad loan recovery framework in the country. "This would likely see further acceleration in the accumulation of non-performing loans at both state-owned commercial banks and private commercial banks," it predicted. The Fitch feels that the government is likely to step in to spearhead higher loan growth to attain its ambitious economic growth targets, which would once again put the industry on course for a continued surge in troubled loans. It said the lending interest rate cap and an increase in provisioning in response to an accumulation of soured loans will also weigh on the banking sector profitability. Referring to the private banks, the agency said such lenders have not complied with the single-digit interest initiative.

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