No cap on loan disbursement in election year!

The Association of Bankers, Bangladesh (ABB), a platform of professionals, has expressed concern over the Bangladesh Bank's decision to slow down credit growth.

As it urged the central bank to make a shift from its policy decision, the ABB has argued that such a move ahead of the scheduled general elections would result in increase in interest rate and higher inflation.

If the new ceiling for loan disbursement is enforced, the banks would need around Tk 200-250 billion to make adjustments, the ABB said in a letter to the BB governor Fazle Kabir on 15 January. The letter was signed by ABB vice president and The City Bank managing director Sohail RK Hussain.

It said it will be difficult to ensure cash flow to different projects, provide cash capital, distribute loans in general, and pay import bills, if such loan cap is imposed.

Small and medium-sized investors and corporate entrepreneurs will also face challenges. The banks will not be able to handle the pressure just before the election.

The flow of private loan disbursement has exceeded the 16.2 per cent growth target as fixed in the latest monetary policy. The credit growth was recorded at 19.6 per cent in November, the BB authorities told a meeting with the chief executives of the banks on 3 January.

So, to make the best use of the loans, the advance deposit ratio (ADR) would be adjusted, BB officials said there.

However, the chief executives of the banks requested the central bank not to take the decision right now, arguing it would hamper the country's development.

Currently, the ADR for scheduled banks are 85 per cent while for the Islamic banks it is 90 per cent.

"This is a year of the election. So, there will be many development projects, meaning the demand for loans of big amounts will increase. If the process is hampered, the country's GDP growth will be affected. We do not think the government will move for lowering the advance deposit ratio," said Shafiqul Alam, ABB vice chairman and managing director of Jamuna Bank.

"We are concerned that the advance deposit ratio would be lowered to around 80.5 per cent. This will require deposits of Tk 200-250 billion. Besides, the banks will increase the interest rate for deposits if these rules are implemented," the ABB said in the letter sent to the BB governor.

"As a result, deposits of one bank will go to another bank, but new deposits will not be made. Because, the customers will withdraw their money and keep it in the bank that offers higher rates. The banks at the same time will increase the interest rate for the loans, which may cause inflation."

The ABB has sought a year's time if a new monetary policy decision is to be implemented.

The BB will in the meantime make public its new monetary policy statement in the last week of this month, officials concerned said.

* This report, originally published in Prothom Alo print edition, has been rewritten in English by Quamrul Hassan.