The central bank will introduce more regulations and strengthen supervision over banks in the coming months to avert any "systemic crisis" in the sector, the governor said yesterday.

Atiur Rahman, however, did not detail the regulations in the pipeline and asked the banks not to be worried about the changes.

He was talking to the chief executive officers of Banks at the launch of the Financial Stability Report 2011 at the Bangladesh Bank office.

“It doesn't mean that the sector will become over-regulated,” Rahman said.

However, the BB efforts alone will not work without the implementation of prudential rules and regulations by banks, non-bank financial institutions, and regulators of other financial intermediaries, said the governor.

The report, launched by the BB for the second time, was prepared to understand the resilience of the financial system in dealing with unanticipated and adverse shocks.

The report outlined the major trends in the banking industry and the non-bank financial institutions with respect to their impact on financial stability.

The report found that the interest rate spread (the difference between lending and deposit rates) in the banking sector increased to 5.5 percent in December 2011 from 4.9 percent in January 2011.

The report blamed the hike in spread on higher spread in the foreign commercial banks.

“The foreign banks' average spread was almost double the industry's average,” it said.

According to the report, the banking sector's balance sheet grew by 21 percent to Tk 587,400 crore at the end of 2011 compared to that a year ago.

The report also showed that the loans and advances disbursed by the banks in 2011 decreased by 1.3 percentage points compared to the previous year.

It said the inter-bank money market faced a liquidity pressure in 2011 due to huge government borrowings amid a slowdown in savings by the households because of high inflationary pressure.

However, in 2011, the amount of government bonds held by banks was Tk 66,210 crore, up by 11.3 percent than a year ago.

The report also said prudent steps by the central bank helped the commercial banks to reduce their credit-deposit ratio to 78 percent in December 2011 from 86 percent in January the same year.

The banking sector's net profit decreased by 9.7 percent to Tk 752 crore in 2011 from Tk 833 crore in 2010 although the operating profit rose by 9.3 percent to 1,868 crore, the report said.

However, Islamic banks showed a remarkable growth in 2011 as their assets grew by 25.8 percent, deposits by 25.8 percent, and loans and advances by 21.4 percent compared to those in 2010.

The governor asked the CEOs of Banks to remain extra cautious about the risks that may arise from internal and external shocks.

“Don't take too much risk to profit more,” said Rahman.

Deputy Governor SK Sur Chowdhury, Chairman of Association of Bankers Bangladesh Nurul Amin and BB's Banking Supervision Adviser Glenn Tasky were also present.

News: The Daily Star/Bangladesh/8th-Oct-12