Bangladesh Bank has asked all the banks to reduce their lending rates to increase credit growth in the industrial sector as the money market awash with huge liquidity.

The central bank came up with the suggestion at a bankers' meeting held yesterday at its headquarters in the capital with Governor Atiur Rahman in the chair. Senior executives of Bangladesh Bank and, chief executive officers and managing directors of different banks were present at the meeting.

The country's banks have been advised to increase their respective credit growth by disbursing their loans progressively instead of aggressively.

The lending rate of some banks is still higher, which is not expected as the market has enough liquidity, Bangladesh Bank Deputy Governor SK Sur Chowdhury told reporters after the meeting.

“Interest rate on loans should go down to compete in the market as foreign loan inflow increased significantly due to lower interest rates,” he said. “We have allowed foreign loan in the local market to make the market more competitive so the country's banks reduce their lending rates,'' he said.

The central bank has warned all the banks to maintain the banking norms as spread of many banks went above 5% recently. It is not possible to solve the crisis just by issuing circulars, he added.

Monthly average interest rate spread for all banks crossed the desired level of 5% and stood at the highest of 16 months in May due to cut deposit rates more than interest rate, according to Bangladesh Bank data.

The interest rate spread, measured as the difference between monthly weighted average rate of advances and deposits went up to 5.22% in May by increasing 0.23% from 4.99% in January.

The spread was 5.33% in December 2012 with high interest rate 13.8% and deposit rate 8.47%. Then, it remained between the range of 4.95% to 5.15% in last one and half years due to efforts made by Bangladesh Bank.

Banks have been asked to bring down their capital market exposure to 25% limit of the capital.

“Most of the banks, excluding 15 banks, comply with the new rules. We have asked rest of the banks to submit their time plan to reduce their excess exposure within July 21, 2016,”said SK Sur.

He also said we had asked those banks to go with the investment in the capital market, who have already reduced their exposure below the limit.

The central bank strongly warned the Sonali Bank to settle the accepted bills with other banks relating Hallmark scam as the state-owned bank failed to fulfill its own commitment. 

It also phased out time for Sonali Bank to settle the 1,756 bills within September 2016. The central bank will take legal action if the bank fails to settle the bills during the given period, he said.   

As non-performing loans (NPL) management is the biggest challenge for the banking sector, we have requested all the bankers to keep the NPL under control in future and the central bank also assured us  of giving support to reduce it, Ali Reza Iftekhar, president of Association of Bankers Bangladesh (ABB). 

Bangladesh Bank is going to announce a new monetary policy for the first half of the current fiscal year on Sunday next, with a challenge to stimulate investment in private sector.

The credit growth target would be set at 16.5%, a senior executive of the central bank said yesterday.

The target would then remain same to what it was in the January to June period, which would also remain far short of the period’s target. He said the credit growth in the last six month would be 13.5% at best, portraying sluggish investment.

The credit growth remained far below from the programmes estimated in last several monetary policies.

“There will be no surprise in the new policy we are going to announce,” said Bangladesh Bank senior adviser Allah Malik Kazmi. He said credit space will be kept almost unchanged as local market would not be so crowded due to inflow of foreign loans.

The Monetary Policy Statement would continue with the existing measures to keep inflation below 7% and set the GDP growth above 7% in line with the government target of 7.3% for the fiscal year 2014-15.

“We will have policy to divert the liquidity to investment. We have already raised the cash reserve requirement (CRR) to absorb the excess liquidity from the market and have plans to increase it further, if needed,” he said.

He said the central bank will take steps to keep stability in the money market, but increase of investment would depend on political situation. “We will take the political situation under consideration in setting the monetary policy programmes as BNP announced to go for movement after Eid festival.”

The central bank expects import expenditure will rise this year, but will have no pressure on reserve as it has surplus current account balance. The current account may not remain surplus due to rise in import payment, but it would not be negative, he said.

He added that the central bank failed to achieve its target to use the credit growth set in the last few monetary programmes due to lack of confidence among the businesspeople amid political uncertainty.

Under the monetary programme for the fiscal year 2013-14, the central bank had set 15.5% credit growth target for the private sector by December 2013 and 16.50% by June 2014.

The BB data showed that the credit growth in the private sector stood at 11.39% in May and the central bank is expecting it would stand 13.5% at best at the end of June, which is far below the target.

The actual credit growth of the private sector was 16.6% in December 2012, which was far from the target of 18.3%. Then the central bank cut its credit growth target to 10.8% in June 2013 considering the lack of demand and achieved it.

But, the gap between the actual and programmed target widened during last two monetary policies amid political unrest. The actual credit growth stood at 10.6% in December 2013 against the programme of 15.5% and in May it stood at 11.39% against 16.8%, according to the Bangladesh Bank data.