Economy
’17 Banks Facing Liquidity Crisis over Violating Loan disbursement limit’
Despite Bangladesh Bank’s initiatives to promote good governance in the banking sector, 17 banks have recently violated their loan disbursement limits, and are now embroiled in a severe liquidity crisis.
Having been over-aggressive in providing loans, they are now unable to recover the loans and attract new deposits as desired, according to the latest internal report of the central bank.
The banks should not sanction any new loans until they restore the ratio of their loans to deposits in accordance with limits set by Bangladesh Bank, which regulates the financial sector.
Conventional banks can provide loans of up to Tk 87 for every Tk 100 in deposits, while Shariah-based banks can give loans of up to Tk 92 for every Tk 100 in deposits, according to the rules of Bangladesh Bank.
This is called Advance Deposit Ratio (ADR) or loan-deposit ratio limit in banking terms.
According to the central bank report covering January 1-26 of this year, 17 banks violated the limits set for them on lending orders due to a lack of discipline.
As a result, the concerned banks have been plunged into an extreme liquidity crisis, making it difficult for them to sanction new loans. Some of them are even unable to pay depositors in some cases.
Experts fear that the existing situation has created additional risks for depositors. According to them, irregularities, corruption and ‘ghost loans’ – loans to firms that turn out to be non-existent -are behind the collapse of the banking system’s loan disbursement process.
“In the banking sector, there have been allegations of giving large amounts of ghost loans in recent times. If this continues, the sector will be at risk,” said ABM Mirza Azizul Islam, economist and adviser on finance to the last caretaker government.
Mirza Azizul told, “Lending beyond the limit against deposits disrupts the credit system.”
Besides, the debt collection situation of the banks is not satisfactory now. In such a situation, if the non-performing loans increase further with additional loans, then there is a danger for the bank and its depositors will suffer, he added.
He suggested the intervention of the central bank in these banks immediately.
According to the Bangladesh Bank report, the ADR of National Bank Ltd stood at 98.23 while that of AB Bank was 96.64 in its conventional stream and 103.45 in its Shariah stream.
State-owned Basic Bank’s ADR stood at 91.17, One Bank’s was 89, and multinational National Bank of Pakistan’s was 87.52. Widespread irregularities and corruption have already been reported in these banks.
Apart from this, Community Bank’s ADR was 88.28, NRB Bank at 88.05 and IFIC Bank’s ADR was 87.48, the report states.
Shariah-based Exim Bank’s ADR stood at 100.28, Standard Bank’s at 96.28, Premier Bank’s Islamic Window 155.09 and Bangladesh Commerce Bank’s Islamic Window’s ADR was at 133.26.
Apart from this, the ADRs of five other Shariah-based banks ranged between 93.01 and 104.54.
A managing director (MD) of a private bank told that the lending limit has undoubtedly been set by Bangladesh Bank based on adequate research and global best practices. No bank should have to cross the limit.
“These violations are creating risk in the banking sector. Depositors in particular will be at greater risk. Already some banks and non-bank financial institutions are not able to return money to depositors,” he said, maintaining anonymity.
The central bank has also extended the period of ADR adjustment five times to allow the banks to bring their lending practices in line with the limits.
However, many banks could not coordinate this. In such a situation, Bangladesh Bank even increased the required ADR to improve the overall liquidity situation of the banking sector to maintain the pace in credit flow to the private sector.
The executive director and spokesperson of Bangladesh Bank, Md Mezbaul Haque, told that although some banks may at times find themselves in violation of the ADR set for them, the central bank would under normal circumstances give them time to get themselves back within the limit.
“But if they stay outside the limit for long, then they must be warned and action would be taken accordingly,” Mezbaul said.
Referring to the countrywide recent havoc and atrocities, Prime Minister Sheikh Hasina today said that she had an apprehension there might be a strike like this by the BNP-Jamaat clique to pull down the country’s prosperity.
“. . . they (BNP-Jamaat) had wanted not to hold the elections, but we had arranged the elections. After election they thought it wouldn’t be accepted by all, but we’ve also made it acceptable to all and we’ve formed the government. It was an apprehension to me that there would be a strike like this,” she said.
The Premier made this remarks while exchanging views with editors, senior journalists and head of news of various media outlets, organised by Editors’ Guild at her office (PMO).
She mentioned that before and after the election in 2013-14, the BNP-Jmaat clique unleashed arson attacks and killings that left hundreds of people killed and thousands injured.
“It was little bit understandable that this (the activities and movement of the students) was a grave conspiracy,” she said.
Sheikh Hasina said that she didn’t want any incident which might invite any unwanted situation that will invite instability in the country. “It was the target to destroy country’s economy,” she said.
She questioned about the understanding level of the people who supported these mayhem aiming to cripple the country’s advancement and prosperity.
Sheikh Hasina, also the chief of Awami League, said that vested quarter is highly interested to destroy country’s independence and the continuation of the democracy that is going on for long 15 years.
She again said that she never wanted to deploy army personnel in the field while the students were there for the sake of their security.
“While they (students) declared that they are not involved in the on going subversive activities then we called for army,” she said.
The premiers also said that she also didn’t want to impose curfew as the country is going through a democratic environment for 15 years.
She requested the people to resist those who have done this bane for the country. “They have destroyed all the structures have been built for their welfare and livelihood. They have struck all those structures. Who will be the worst sufferer? Of course, mass people. Now it is the responsibility of the mass people to resist these terrorism and militancy,” she said.
The premier called for creating mass awareness against the militancy that has opened in the destructive activities.”If the people don’t become aware then what could we do or how much we could do alone,” she said.
She also mentioned that the targets of the recent mayhem was Awami League, Freedom Fighters and pro-liberation forces.
The Prime Minister said that when all demands of the quota-free movement students were accepted why they gave scope to the militants for doing such heinous activities.
“One day the quota-free movement activists have to answer to the nation, why they gave such opportunity to them for this destruction to the country,” she said.
PM’s Press Secretary Md Nayeemul Islam Khan moderated the programme, while Editors’ Guild president Mozammel Huq Babu delivered welcome address.
Senior journalist Abed Khan, Bangladesh Pratidin editor Nayeem Nizam, DBC Editor-in-Chief and CEO Monzurul Islam, Bhorer Kagoj Editor and Jatiya Press Club general secretary Shyamol Dutta, Daily Jugantor Editor Saiful Alam, Jatiya Press Club president Farida Yasmin, Dhaka Journal chief editor Syed Istiaque Reza, Head of News Nagorik TV Dip Azad, Amader Somoy Editor Mainul Alam, Bangladesh Journal editor Shajahan Sarder, DBC news editor Zayedul Ahsan Pintu, Ashish Saikat of Independent TV, Bangla Tribune editor Zulfiquer Russell, head of News of 71 TV Shakil Ahmed, Energy and Power Editor Mollah Amzad, Head of News of Kings News Nazmul Huq Saikat and Mamunur Rahman Khan of RTV also spoke.
Britain’s inflation rate held steady in June after returning to the Bank of England’s target the previous month, official data showed Wednesday, confounding expectations for another modest slowdown.
The Consumer Prices Index was unchanged at 2.0 percent in June from the same level in May, the Office for National Statistics said in a statement, compared with market forecasts of 1.9 percent.
“Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year,” said ONS chief executive Grant Fitzner.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost.
“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts said the data could cause the Bank of England to sit tight for a while longer before starting to cut interest rates.
“The chances of an interest rate cut in August have diminished a bit more,” said Paul Dales, chief UK economist at research consultancy Capital Economics.
Last month, the BoE kept its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed news that inflation remained at the BoE’s target level.
“It is welcome that inflation is at target,” said Darren Jones, Chief Secretary to the Treasury, in a statement.
“But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations” of the UK economy, he said.
Labour, led by new Prime Minister Keir Starmer, has pledged immediate action to grow the economy after the centre-left party won a landslide general election victory to end 14 years of Conservative rule.
Later on Wednesday, King Charles III will read out Labour’s first programme for government in a decade and a half, when the UK parliament formally reopens following the July 4 election.
Elevated interest rates have worsened a UK cost-of-living squeeze because they increase borrowing repayments, thereby cutting disposable incomes and crimping economic activity.
The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after the invasion of Ukraine by key oil and gas producer Russia.
China’s economy grew 4.7 percent year-on-year in the second quarter of 2024, official data showed Monday, less than analysts had expected.
“By quarter, the GDP for the first quarter increased by 5.3 percent year on year and for the second quarter 4.7 percent,” Beijing’s National Bureau of Statistics (NBS) said in a statement.
The figures were much lower than the 5.1 percent predicted by analysts polled by Bloomberg.
Retail sales — a key gauge of consumption — also slowed to just two percent in June, the NBS said, down from 3.7 percent in May.
The world’s second-largest economy is grappling with a real estate debt crisis, weakening consumption, an ageing population and trade tensions with Western rivals.
Top officials are meeting in Beijing on Monday for a key plenum, with all eyes on how they might kickstart lacklustre growth.
