Dhaka, Bangladesh (BBN)– The central bank of Bangladesh has asked commercial banks to ensure the quality of credit for reduction of classified loans in the country’s banking sector, officials said.
The instruction was issued at a bankers meeting, held in the central bank headquarters in the capital Dhaka on Tuesday with newly appointed Bangladesh Bank (BB) Governor Fazle Kabir in the chair.
The BB’s latest warning came against the backdrop of a rising trend of both private sector credit growth and the volume of NPLs in the recent months.
At his first meeting with the chief executive officers and managing directors of all scheduled banks, the central bank chief advised the bankers to avail policy support, offered by the central bank earlier, for adjustment of their capital market over exposures within the stipulated timeframe.
Earlier on April 27 last, the BB extended its policy supports to the banks for adjustment of their capital market over exposures within the stipulated timeframe without selling any shares to the markets.
He joined the BB as its 11th governor on March 20 last following a top-level shakeup amid a row over the trans-national bank burglary through cyber-channel.
At the meeting, the banks have been also instructed for taking effective measures to reduce the amount of classified loans as early as possible, they added.
The volume of non-performing loans (NPLs) in the country’s banking system jumped by more than 15 per cent to BDT 594.11 billion during the January-March period of this year from BDT 513.71 billion in the preceding quarter despite close monitoring by the BB.
“We’ve advised the banks do not increase loan portfolios with aggressive lending,” SK Sur Chowdhury, deputy governor of the BB, told BBN in Dhaka after the meeting.
The banks have also been advised to be more careful in case of borrower selection and proper due diligence when sanctioning fresh loans, he explained.
Bangladesh’s private sector credit growth increased further in March last in view of rising trend in consumer loans, trade financing along with readymade garment (RMG), construction and commercial purposes, according to the central bankers.
The private sector credit growth rose to 15.16 per cent in March 2016 on a year-on-year basis from 15.11 per cent in February. It was 14.82 per cent in January 2016.
The BB also advised the banks to avail the latest policy support adjustment of their capital market over exposures within the stipulated timeframe without selling any shares to the markets, the deputy governor added.
“We’ll take regulatory actions immediately after the ends of deadline.”
The central bank earlier asked the banks to bring down their overall capital market investment within 25 per cent of total capital by July 21, 2016 in line with the Banking Companies (Amended) Act 2013.
According to the Banking Companies Act 1991 (Amended 2013), total capital comprises of four components – paid up capital, balance in share premium account, statutory reserve and retained earnings, as stated in the latest audited financial statements.
While calculating total investment in capital market different components including all types of shares, debentures, corporate bonds, mutual fund units and other capital market securities will be considered.
Currently, at least six banks are maintaining more than 25 per cent capital market exposures while all banks capital market exposures stood at more than 22 per cent.

BBN/SSR/AD