Central bank sources said that the volume of classified loans came down to 12 percent with a number of steps initiated by the Bangladesh Bank (BB), hoping the classified loans to come down below 10 percent.

In the next year BB may increase the capital adequacy ratio for the commercial banks and reduce the loan limit for individual borrowers to encourage banks to go for more syndicated loans that has less risk.

"We will upgrade the loan classification standards to the international level. The quality of so far disbursed syndicated loans is very good. Those who are good borrowers don't face any more problems in this case," said an official of Bangladesh Bank, adding capital adequacy ratio may increase next year.

"The growth in credit is satisfactory. The national commercial banks (NCBs) alone used to provide loans in the small and medium enterprises but private commercial banks (PCBs) are now giving loans to these areas," he said. Banks still have Tk 9,500 crore excess liquidity of which PCBs have around Tk 4500 crore.

The banks had good growth in deposit and credit which will push their profit up. Interest rate was cut in 2004 and is expected to go down further next year. Banks are trying to find new areas for investment including the small and medium enterprises -- agro-based and telecom sectors in particular, high officials of different NCBs and PCBs said.

"We have got three proposals in the telecom sector and one in energy. We will try to approve loans in these areas next year," said Abdur Raqib, executive president of Islami Bank Bangladesh Ltd, "We are interested in providing loans of Tk 400 crore for Jatrabari flyover."

Total deposits of banks amounted to Tk 126,399 crore and the growth was 10.85 percent or Tk 12,373 crore as on October 7, 2004. On the other hand, total credit was Tk100,887 crore and the growth was 12.23 percent or Tk 10,995 crore during the same period. The growth in deposit and credit is expected to increase by December, 2004, which can be known after the ledgers are drawn by the first or second week of January, 2005.

"We had a good year in 2004. I hope that investment in the pharmaceutical, textile, steel and garment sectors will increase next year," said Md Nurul Amin, managing director of National Credit and Commerce Bank Limited (NCCBL).

Nationalised commercial banks (NCBs) had Tk 359 crore net income in 2003 against private commercial banks' (PCBs) Tk 1081 crore and foreign commercial banks' (FCBs) Tk 324 crore in 2003 and in 2004 they are hoping to earn more.

Banks cut their interest rates in 2004, which dented their profits but they had good business in export and import, which pushed their net income in 2004 up.

Banks have huge investment in the country's backward linkage industries of the garment sector and are hopeful that the investment in these industries will not go in the red.

In case of increasing investment in the backward linkage industries, the banks will try to understand the global trend for at least next three months and then they will decide.

The NCBs signed memorandum of understanding (MoU) with the central bank and tried to improve the quality in sanctioning loans, with failure to improve performance in default loans. The NCBs were also supposed to cut their expenditure in 2004 but failed to do so.

They had targets to recover bad loans from top 20 defaulting borrowers but they did not succeed in that case as well.

"We could not recover bad loans from our top 20 borrowers. We sent letters to them but they did respond as they are mainly in the public sector," said a top official of Sonali Bank.

The performance of the NCBs was poor in the middle of the year. Sonali Bank incurred a loss of Tk 22 crore till June this year but its performance improved substantially by the later part of the year and it is expecting a profit of Tk 50 crore.