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Dhaka Tribune

Banks asked to increase agro and SME loans as credit falls

Update : 25 Aug 2013, 04:56 PM

Amid private sector credit fall, Bangladesh Bank advised the commercial banks to give an enhanced focus on agricultural and SME sector credit in an attempt to improve the situation.

The advice came at a meeting between the central bank and the chief executives of the scheduled banks in Dhaka yesterday.

Bangladesh Bank Governor Dr Atiur Rahman chaired the meeting.

Big borrowers are not taking loans now, resulting in credit fall and in this situation, the banks have been advised to increase credit flow to the SME and agricultural sectors, said President of Association of Bankers Bangladesh (ABB) Nurul Amin.

Despite having excess liquidity in the banks, the investors have chosen to stay out of borrowing fearing political turmoil ahead of upcoming general election.

“Banking business was not good in last six months,” observed Nurul Amin, adding that there is be no chance of liquidity crisis in the banking sector in next six months.

At the meeting, the bankers discussed ways to deal with possible political instability in next six months when there might be an interim government followed by a new elected government.

Bangladesh Bank’s Deputy Governor SK Sur Chowdhury identified poor infrastructures, slow investment, political turmoil and banks’ loan scams as holding back investors to take loans.

“If necessary, Bangladesh Bank will come up with policy to improve the situation,” he said.

The banks were asked to provide recommendations to increase private sector credit.

Besides, the central bank asked the banks to lower spread as the most of the banks crossed 5% in deference between deposit and lending interest rates.

Bangladesh Bank has an instruction to the banks to keep spread below 5%.

But in last month, the central bank observed that most of the banks crossed the limit as the interest rate of deposit declined when loan interest rate remained higher.

“The higher loan interest rate against lower deposit rate resulted in raising spread,” said SK Sur Chowdhury.

Bangladesh Bank has already warned 26 banks through letters against their higher spread, he informed.

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