Bangladesh Bank Headquarters
Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has asked two state-owned specialised banks (SBs) – BKB and RAKUB – to take effective measures for making operational profit through mobilising low-cost deposits instead of high-cost funds.
The instructions were given at a review meeting, held at Bangladesh Bank (BB) headquarters in Dhaka on Sunday with BB Governor Fazle Kabir in the chair, officials said.
The meeting was convened to review the progress of implementing the memorandums of understanding (MoUs) and key financial indicators of Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB).
BB earlier signed the MoUs with management of the SBs to improve their financial performance by providing policy support.
The public sector agricultural banks have also been instructed to improve their financial health through expediting loan recovery drives across the country.
Chairmen of the board of directors and the chief executive officers (CEOs)-cum-managing directors (MDs) of the public sector banks were present in the meeting, according to the officials.
A significant amount of the SB’s deposits, collected from both public and private entities with offering higher interest rates that push up the public banks cost of fund, they explained.
In the meeting, the SBs have been asked for taking effective measures to gradually meet their capital shortfall with own resources, they added.
The BB’s latest instructions came against the backdrop of the rising trend in overall capital shortfall of the two SBs till the first-half of the current fiscal year (FY), 2018-19.
The aggregated capital shortfall of the two SBs increased by BDT 645 million to BDT 86.54 billion as on June 2018 from BDT 85.90 billion six months before, BB data showed.
The SBs faced the capital shortfall during the period under review due to the higher volume of their classified loans, among other factors, according to the central bankers.
Their total amount of non-performing loans (NPLs) stood at Tk 52.41 billion as on June 30. However, it was Tk 54.26 billion as on December 31, 2017.
Talking to the BBN after the meeting, a BB senior official said the central bank has asked the SBs for taking effective measures to gradually meet the capital shortfall with their own resources.
He also said the SBs have also been advised to expedite collection of low-cost deposit from the rural areas.
“The public sector banks will be able to make profit through investing the low-cost fund in micro, small and medium enterprises (SMEs) across the country,” the central banker explained.
The BB official also said the public banks have been advised to expedite their credit flow to agriculture sector along with SMEs instead of large loans for minimising risks.
The SBs have also been asked to bring down their advance-deposit-ratio (ADR) within the required limit from the existing level within the stipulated timeframe.
Earlier, the central bank extended the deadline to implement the banks’ revised ADR limit by three more months.
Following the extension, the banks, having ADR above the revised limit, are allowed to implement the amended ADR rules by March 31, 2019 instead of December 31, 2018 earlier.
ADR has been re-fixed at 83.50 per cent for all the conventional banks and at 89 per cent for the Shariah-based Islami banks. The existing ratios are 85 per cent and 90 per cent respectively.
The SBs have also been asked to improve their internal control and compliance along with proper implementation of the existing core risk guidelines to minimise their risks.
The central bank earlier identified six core risk factors in the country’s banking sector. These are: credit, asset and liability, foreign exchange, information technology, internal control and compliance, and money laundering.
The meeting also reviewed various issues, including recovery position of default loans, liquidity situation, credit growth, operating expenses and cost of funds of the SBs.
BBN/SSR/AD