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Wednesday, November 21, 2012

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Unlike the cash-strapped state banks, private commercial banks are sitting on surplus funds to the tune of Tk 20,000-25,000 crore, which indicates a slower demand for loans in the market, according to banks.

The loan-deposit ratio of the private banks has gone down significantly from the Bangladesh Bank's permissible limit of 85 percent. Call money rate has also come down to the single-digit level, which was unthinkable a few months ago.

Top bankers identified a set of reasons for an increase in liquidity in the banking industry.

The reasons include: infrastructure constraints, a low demand for loans, high lending rates, new rules on provisioning, tightening of imports and consumer loans, a decline in government's borrowing from banks, a rise in remittances and availability of loans from foreign sources.

The central bank's new rules to devolve investment in government securities to all banks from primary dealer (PD) banks alone created some funds for the PD banks.

“Imports and the private sector's demand for loans have gone down. But the growing tendency to borrow from foreign sources has created the surplus fund,” said Nurul Amin, managing director of NCC Bank.

Amin said local private companies borrowed $2 billion from foreign sources this year.

He said many banks are now investing in short-term treasury bills to earn something from their excess liquidity.

NCC Bank's present loan-deposit ratio is at 77 percent, meaning the bank gave Tk 77 as loans against a deposit of Tk 100.

The ratio is 71-72 for Mutual Trust Bank, which reflects a poor demand for loan.

“Disbursements are substantially lower than the credit facility in place,” said Anis A Khan, managing director of the bank.

His bank's surplus money is at around Tk 700-800 crore.

Khan said the government's borrowing from the banking sector has declined in the last 4-5 months. He sees the central bank's measures regarding the PD banks have also reduced the liquidity pressure on them.

Helal Ahmed Chowdhury, managing director of Pubali Bank, said a rise in remittances and a fall in imports have created some additional funds for the banks.

Chowdhury said his bank has nearly Tk 1,000 crore unused funds now.

SA Farooqui, managing director of Standard Bank that has Tk 800 crore unused funds, said a substantial reduction in import of food grains and 'any purpose loan' has contributed to an increase in the banks' funds.

Shafiqul Alam, additional managing director of United Commercial Bank that has Tk 1,000 crore in surplus funds, said they have been facing a shortage of borrowers in the call money market.

The call money rate, which was 10.21 percent on November 5, went down by nearly 2 percentage points to 8.26 percent on Monday.

Central bank data shows excess reserves, which are equal to the balance of the scheduled banks' deposits held with the BB minus their cash reserve requirement or CRR, have also increased to Tk 18,011 crore as on Monday from Tk 14,520 crore on Tuesday last.

Muklesur Rahman, deputy managing director of Eastern Bank, explained the situation a bit differently.

“Banks have concentrated more on recovery than lending. They are busy with their housekeeping,” Rahman said.

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