Dhaka, Bangladesh (BBN) – The central bank of Bangladesh on Sunday asked the country’s top bankers to take effective measures for ensuring stability in the country’s banking sector rather than profitability in 2011.

The commercial banks have also been advised not to charge more than 14 percent interest rate on working capital to industries.

The advice came at the first meeting of bankers for this calendar year held in the central bank on Sunday with Bangladesh Bank (BB) Governor Atiur Rahman in the chair.

“The banks will have to do everything that is necessary for ensuring stability in the banking sector,” Senior Deputy Governor of the BB Nazrul Huda told reporters after the meeting.

He also said the banks usually consider profitability as their prime business objective, which sometimes affects the stability in the banking system.

“We’ve put special emphasis on ensuring the banking sector’s stability considering the instable situation in the country’s capital market in 2010,” the BB deputy governor said while explaining their latest moves.

The credit-deposit ratio (CDR) has been identified as a source of instability in the banking system, Mr Huda said, adding that the central bank had found higher CDR in many banks.

“The CDR reached 85 per cent suddenly in December last which hit 86 per cent in January this year. But the CDR was ranging between 79 per cent and 81 per cent in the last 36 months,” he noted.

The central bank earlier asked the commercial banks to bring down their CDR to a safe limit by June 30 this year.

The conventional commercial banks will have to bring down their CDR to 85 per cent while Sharia-based Islamic banks to 90 per cent within the timeframe, set by the BB on February 20 last.

“Average CDR of all banks should not cross 80-81 per cent,” Mr Huda said, adding that the banks will have to maintain a balance between credit and deposit growth to avoid financial risk.

The deputy governor further said the BB has also worked to amend the existing banking companies act relating to investment in the capital market from the total deposit of a bank.

Currently, the banks are allowed to invest 10 per cent of their liabilities (deposits) in the share market.

The central bank has requested the banks not to cross 14 per cent interest rate on working capital to industries, Mr Huda said. “Now banks are free to fix their interest rates on lending after withdrawal of cap on lending rate by the central bank,” he added.

Chairman of the Association of Bankers Bangladesh (ABB) K Mahmood Sattar told reporters that they will discuss these issues in their next meeting, which is scheduled to be held in the next month.

BBN/SSR/AD-11Apr11-12:37 am (BST)