Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has advised the commercial banks to monitor their asset-liability mismatch closely while making financing decisions.

“The stressed condition of the inter-bank market suggests that banks need to monitor their asset-liability mismatch closely while making financing decisions,” Bangladesh Bank (BB) said in its Financial Stability Report-2010.

BB Governor Atiur Rahman formally released the report, the first in its history, at a meeting with the bankers held at the central bank on Monday.

The report has highlighted the overall performances of the commercial banks, non-banking financial institutions (NBFIs), insurance companies and the capital market.

The country’s banking sector demonstrated a moderate level of resilience in 2010 as reflected in the improvement in key financial indicators of the banking industry.

“The banking sector’s balance sheet recorded sizable growth, which was broad-based as most of the income-earning assets registered positive growth; banking assets were not too much concentrated among a small number of banks; and loans also were not heavily concentrated,” the report said.

Although the overall credit-deposit ratio (CDR) as at the end of 2010 was at a tolerable level, investment in call money market decreased by 11.61 per cent while borrowings increased by 30.96 per cent in the last calendar year (CY) compared to CY09, according to the report.

“This excess of borrowing growth over lending growth in the banking sector evinces the misuse of excess liquidity, by heavily engaging in the capital market by banks in 2010,” it noted.

In fact, there was no liquidity crisis in the banking sector in 2010, the report said, adding the banks’ funds were simply deployed in the secondary share market.

“The banks were restricted from exceeding the prudential limit of share holding, i.e. 10 per cent of a bank’s liabilities,” it said.

In terms of banks’ liabilities, at the end of the last calendar year, the aggregate exposure was nearly 6.0 percent as against the ceiling.

“Nine commercial banks, with an asset share of 16 per cent, were found to have their exposure in excess of the approved limit,” the BB noted.

Free capital, defined by equity minus fixed assets, of the banking industry was in a rising trend during CY08 to CY10, implying that the amount of capital available to absorb losses was also in an increasing trend, the central bank said.

“However, a majority of the banks maintained a leverage ratio (equity/asset) lower than 10 percent implying that there is still further room for them to improve their financial soundness,” it noted.

BBN/SSR/AD-27Dec11-1:06 am (BST)