BB to banks: lower credit-deposit ratios...........

The central bank sent a stern warning to the banking sector on Tuesday to lower credit-deposit ratios, in light of the Western world's banking crisis, with particular reference to seven of the country's private commercial banks.

"Private banks are competing with each other to distribute loans beyond their capacity, especially to unproductive sectors, which may have severe consequences for the entire banking sector," the Bangladesh Bank governor said.

"The highest cautionary measures should be taken while extending credit, with the example before us of the Western world's banking crisis due to distribution of loans without proper scrutiny," said Salehuddin Ahmed.

The governor was talking to reporters after holding a bankers' meeting with the chief executives of government, private, specialised and foreign banks at the central bank offices.

He said the country's private banks in particular had been overextending themselves over the past one year, by disbursing more loans than deposits collected, most of which were given to 'unproductive sectors' such as housing and consumer credit for cars and other luxury products.

"A number of private banks have expanded their credit activities getting into unreasonable competition with each other," the central bank boss said.

"So we've warned those private banks."

"They should also increase their credit flow to more productive sectors."

"In the current country perspective, more credit must go to productive sectors, especially agriculture and SMEs. Growth in these sectors will create more jobs and contribute to achieving the expected GDP," said Salehuddin.

According to figures tabled at the bankers' meeting, overall growth of banking deposits from Dec 2007 to Dec. 2008 was 19.2 percent.

Overall credit disbursed by the banking sector grew by 22.3 percent over the same period.

The country's 30 private commercial banks saw 26.1 percent deposit growth against 30.9 credit growth during the period.

Of these, seven private banks saw unusually high credit-deposit ratios of 85 to 98 percent.

Bangladesh Bank directed them not to exceed a credit-deposit ceiling of 82 percent.

The seven banks and their credit-deposit ratios are: AB Bank - 91.57 percent, NCCBL - 95.63 percent, Standard Bank - 97.96 percent, First Security Bank - 96.30 percent, Trust Bank - 88.24 percent, Shahjalal Bank - 95.01 percent, and BRAC Bank - 88.45 percent.

During the period, the credit growth of these seven banks was: AB Bank - 39.36 percent, NCCBL - 41.28 percent, Standard Bank - 57.07 percent, First Security Bank - 36.03 percent, Trust Bank - 47.35 percent, Shahjalal Bank - 60.86, and BRAC Bank - 43.76 percent.

Kazi Mahmud Sattar, president of the Association of Bankers Bangladesh, an organisation of private bank executives, told reporters the banks would comply with the central bank's directives.