Dhaka, Bangladesh (BBN) - The central bank of Bangladesh has advised the commercial banks to avoid fund mismatch through enhancing borrowers' equity or accessing foreign funds for long-term financing.
"Term loans by banks to industries have been growing strongly. These loans are being funded mainly by short-term deposits leading to the widening of asset-liability maturity mismatch," the central bank said in its latest quarterly report.
The report also suggested that the banks could ask their borrower- entrepreneurs to increase their equity and/or to access foreign borrowing for at least parts of their needs to keep this mismatch within a manageable level.
The advice came after the recent practice of financing, particularly the long-term infrastructure projects, by the banks against their short-term sources of funds.
Industrial credit, generally known as term loan, disbursement recorded a significant rise by nearly 22 per cent in the third quarter of the fiscal 2010-11 (FY11) compared to the corresponding period in the previous fiscal.
The disbursement of industrial term loans stood at BDT 75.6401 billion during the January-March period of FY11 as against BDT 62.1286 billion in the same period of FY10, according to the central bank statistics.
The disbursement includes fresh credit, rescheduling of term loans and fund release for balancing, modernization, rehabilitation and expansion (BMRE) of industrial units, the BB officials said.
"Growth momentum has gained pace substantially in first three quarters of FY11, and it is expected to accelerate further as power shortage, the major impediment to output activities declines," the Bangladesh Bank Quarterly (BBQ) for January-March 2011 said.
The pressure on market liquidity and on the balance of payment (BoP) will need to be managed carefully to maintain macroeconomic stability, the report said, adding that the banks will need to strengthen their deposit mobilization efforts to meet increased credit demand of their customers.
"The current pace of credit growth is much higher than the estimated or expected growth rate of nominal GDP (real GDP growth rate plus inflation rate) and will need to be brought down to curb inflationary pressure," it added.
The credit flow to private sector recorded a growth of 27.50 per cent to BDT 725.9970 billion in May 2011 on a year-on-year basis compared to 22.28 per cent or BDT 481.0960 billion of the previous year, the BB data showed.
BBN/SSR/AD-04Aug11-7:47 pm (BST)
