Bangladesh Bank (BB) has warned the commercial banks not to impose any condition of keeping deposits with the bank while insuring loans.

The central bank yesterday issued a circular to all banks directing them to list the companies on the basis of credit rating instead of selecting them on their own likings.

In the circular the BB said, any borrower has right to insure his loans with any insurance company.

Earlier, the central bank received a complaint that many banks have been listing insurance companies on condition that they keep deposits with the company concerned.

News: The Daily Star/ Bangladesh/ Mar-15-2011

The government will sign a Memorandum of Understanding (MoU) with the scheduled banks today to facilitate electronic payment for the electronic government procurement (e-GP) system.

The signing ceremony will be held at the Conference Room of IMEDivision of the Planning Commission at 3:00 pm in presence of the IMED Secretary Md Habib Ullah Majumder, said a press release.

Director General of CPTU Amulya Kumar Debnath and Director (Coordination) Mohammad Yamin Chowdhury will also be present on the occasion.

Initially seven scheduled banks have confirmed signing of the MoU on the day which are Sonali Bank, Agrani Bank, Rupali Bank, Janata Bank, United Commercial Bank Ltd, National Bank and Bangladesh Krishi Bank.

Later, more banks will sign the MoU to operate e-payment for the e-GP system.

The Central Procurement Technical Unit (CPTU) Of the Implementation Monitoring and Evaluation Division (IMED) has taken preparation to launch e-GP in public procurement under the Public Procurement Reform Project-II supported by the World Bank.

After signing of the MoU, CPTU will invite this month bidders for registration with the e-GP system developed by the CPTU. They will also be given orientation on the use of e-GP portal.

Meanwhile, the officials of the procuring entities of the four target agencies have been trained up on the use of e-GP. Connectivity and hardware have also been provided to the procuring entities.

Local Government Engineering Department (LGED), Rural Ele-ctrification Board (REB), Bangla-desh Water Development Board (BWDB) and Roads and Highways Department (RHD are the four target agencies under the PPRP-II.

News: Daily Sun/ Bangladesh/ Mar-14-2011

Bangladesh Bank (BB) yesterday increased repo and reverse repo rates by 0.5 percentage points to slow credit growth in a bid to contain inflation.

The new move came a day after the central bank lifted the lending cap. Executives of commercial banks and a former governor of the central bank have backed the move.

The central bank increased the interest rate on repo to 6 percent, which was 5.5 percent earlier.

The repo rate is the interest rate at which the central bank lends money to commercial banks. The reverse repo rate is the return banks earn on excess funds parked with the central bank.

The rate of interest on reverse repo was hiked by 0.5 percentage points to 4 percent. A central bank circular said the new rates of interest will come into effect from Sunday.

On Sunday the BB withdrew 13 percent lending cap on the rate of interest on credit.

The bankers said the moves will make credit costlier. In January the BB in its Monetary Policy Statement (MPS) indicated repeatedly that it will hike the policy interest rate to contain inflation.

The MPS said: "All central banks in our immediate neighbours and in the fast growing emerging economies of the East Asia are acting decisively to curb inflationary pressure from excessive monetary expansion, with repeated rounds of hikes in both policy interest rates and Cash Reserve Requirement (CRR)".

The MPS also said the recent rates of growth in the credit to the private sector are high and well out of line with likely growth trend in nominal GDP (gross domestic products).

It said, getting to a firmer grip on monetary expansion is an unavoidable necessity.

In the recent times, inflation is rising in almost every month. In January, alongside food inflation, non-food inflation started going up, ringing an alarm bell in the BB.

In July last year, in the first MPS of the current fiscal year, the BB set a target of cutting down private sector credit growth to 16 percent by June next from 24 percent in June. But instead of coming down, the credit flow went up every month and in December the private sector credit growth stood at 27.58 percent.

Earlier the BB increased repo rate in September last year, and in December it hiked CRR to bring down the rate of credit growth.

Association of Banks, Bangladesh President K Mahmud Sattar said, after the central bank gave a contractionary signal in the market, the repo rate had to be increased. He said the withdrawal of the lending rate cap is a good decision on the part of the central bank.

Former BB governor Salehuddin Ahmed said the BB will have to remain alert so that the banks after borrowing through repo do not use the money in unproductive sector.

Source: The Daily Star/March 11, 2011

The central bank has sought applications from interested NRB entrepreneurs for setting up the country’s first NRB bank, officials said Tuesday. May 31 has been set as the deadline for submitting applications from eligible and qualified non-resident Bangladeshis (NRBs).
The proposal by the NRB entrepreneurs mentioned that NRBs are interested to invest here and their demand for establishing banks owned by them was raised many times in different forums.
Considering the huge remittances sent by the NRBs, formation of such a bank to create a handsome foreign exchange reserve has opened up a positive side, the proposal said.
The central bank has invited applications from eligible and qualified NRB entrepreneurs and May has been set as deadline for submitting application, said a circular issued by Bangladesh Bank (BB).
The BB has already made a set of criteria for evaluating the application forms.
Under the guideline for setting up NRB Bank, the paid-up capital of the NRB bank will be Tk 4 billion. The NRBs will provide half of the paid-up capital and the rest will be raised through a public offering.
An entrepreneur can hold a minimum of Tk 100 million in shares or a maximum of 10 per cent of the total shares. No share of the entrepreneur can be transferred within three years without the central bank's permission.
A non-refundable amount of $15,000 has to be deposited with the application.
There are about 47 local and foreign commercial banks operating in the country, of which 30 are private. The approval for any new bank had been on hold from 2001, following the presence of more-than-required banks, and criticisms from various quarters.
In September 2010, Prime Minister Sheikh Hasina on her scheduled visit to the US gave an assurance to the NRBs residing in the US about the establishment a NRB bank.

News: The Independent/  Bangladesh/Mar-09-2011

Rejaul Karim Byron

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The central bank yesterday asked commercial banks to bring down their credit-deposit ratio by June 30.

General banks will have to cut down the ratio to 85 percent, while Islamic banks to 90 percent, according to a Bangladesh Bank (BB) directive.

At a meeting with Deputy Governor Nazrul Huda in the chair, the central bank issued a warning to the banks that they can no longer provide "any purpose loans". It also said no banks can collect deposits by offering aggressive interest rates.

If any bank fails to abide by the rules, it will face legal action.

BB held the meeting with 24 banks whose credit-deposit ratio was more than 85 percent till February 4. Of them, 18 are general commercial banks and the rest Islamic banks. The central bank said the directives will be sent to all the banks subsequently.

BB told the meeting that in 2011 the prime objective of the banks will be to ensure stability, while profit earning will be a secondary priority.

BB Monetary Policy Statement (MPS) published on January 30 showed a stringent attitude towards the banks' laxity in credit management and the fresh ultimatum was issued to them in the same tone.

Central bank Executive Director SK Sur Chowdhury and chief executive officers of the banks were present.

At the meeting, BB placed a report which showed that the average credit growth of the banks was 29 percent but the deposit growth was 22 percent, which pointed to flaws in the banks' fund management.

BB asked the banks to submit an action plan on how they will bring down the credit-deposit ratio by the next week. The central bank will monitor the banks' performance every month.

A BB official said if any bank fails to bring down the ratio by the deadline, punitive action will be taken against the bank including non-issuance of new licence to open new branch and its CAMELS (capital adequacy, asset quality, management, earning, liquidity and sensitivity.) rating will also be poor.

In the MPS, the central bank said a faster credit growth compared with the deposit growth indicated a slack attitude of banks through the second half last year in expanding lending commitments.

Slow growth of time deposits than demand deposits (20.6 percent and 42.4 percent year-on-year growth in November 2010 respectively) signified high liquidity preference among the public, presumably for engagements in the capital market, evidenced by hectic trading at the stock exchange.

According to BB, in 2010 the credit-deposit ratio for private banks was 89 percent, which was 73 percent in state banks and 83 percent in foreign banks.

The banks are allowed to lend up to 82 percent after maintaining a statutory liquidity requirement against deposits. If any bank wants to go for aggressive banking, it can raise the ratio to 85 percent by adding capital alongside deposits.

It was revealed that 20 out of 30 private banks lend up to 85 percent against deposits. Some banks lend more than 100 percent, which means they lend by borrowing from the call-money market at higher interest rates.

Lending growth of 30 out of 43 local and foreign commercial banks was found to be much higher than their deposit growth.

Bankers said banks cannot lend more than their deposit.

The BB officials said the banks went into risky banking to make high profits overnight. Recently, the banks made most of such investments in the stockmarket to take returns on investment.

The MPS said BB has initiated necessary corrective and preventive supervisory steps against lending discipline lapses.

In the backdrop of skyrocketing real estate prices, banks were asked in April 2010 not to extend loans for land purchase. Compliance surveillance on permitted ceiling of holding of capital market assets by banks was tightened in June 2010.

In October, general provisioning requirement on bank loans against stocks and shares was doubled to 2 percent. In December, 50 percent margin requirement was made mandatory on all consumer financing.

News: The Daily Star/ Bangladesh/ Feb-21-2011