Bangladesh Bank raises lending ceiling for banks

  • Abdur Rahim Harmachi,
    Published: 2019-09-17 22:55:26 BdST


The central bank has moved to ease lending limits for banks in a bid to increase the flow of credit into the private sector.

The ceiling for advance-to-deposit ratio or ADR that measures loans as deposits for commercial banks have been raised by 1.50 percentage points to 85 percent. For Islamic banks, the ADR has been fixed at 90 percent, up by 1 percentage point.

In a circular issued on Tuesday, Bangladesh Bank said the decision was taken after considering "the banking sector's capital base, liquidity and most importantly the implementation of Basel III".   

On Jan 30, 2018, the ADR was capped at 83.5 percent for commercial banks and 89 percent for Islamic banks in an effort to curb aggressive lending.

Banks that exceeded these limits were twice given time extensions to make the necessary adjustments.

Zayed Bakht, the chairman of Agrani Bank, said the move will boost lending to the private sector.

"It was a mistake to reduce the ADR at the time. Banks that exceeded the lending limits should have been penalised instead of being granted time extensions," he said. 

But the central bank has now reverted to its previous position. As a result, borrowings will increase in the private sector while there will also be some cash flow into the share market. It will have a positive impact on investments," he added.

The private sector has seen an 11.26 percent growth in loans in the ongoing 2019-20 fiscal year. The figure stood at 11.32 percent the year before whereas the credit growth in the private sector in 2017-18 was nearly 17 percent.