Dhaka, Bangladesh (BBN) – The central bank on Sunday asked the commercial banks to bring down their credit deposit ratio (CDR) to a reasonable level by June 30 this year to ensure stability in the country’s banking sector.

Under the directives, the conventional commercial banks will have to bring down their CDR to 85 while Sharia-based Islamic banks to 90 by June 30 next.

The instructions were given at an emergency meeting held between the chief executive officers of 24 commercial banks and senior deputy governor of the Bangladesh Bank (BB) Nazrul Huda at the central bank on Sunday.

The deadline has been set as the CDR of 24 private commercial banks (PCBs) out of a total of 30 has gone above the safe limit.

Of them, CDR of 18 conventional banks ranges between 85 and 99 while that of six Islamic banks ranges between 90 and 101, the BB officials added.

They also said average CDR of all banks stood at 85.64 as on February 3 this year.

“We’ve taken these precautionary measures to ensure stability in the country’s banking system,” an executive director of the Bangladesh Bank (BB) said, adding that the central bank will take punitive actions against the banks concerned if they failed to meet the deadline.

He also said the central bank will impose restrictions on their some major expansionary activities including issuance of licence for authorised dealer (AD) branch, generally known as foreign exchange branch, and approval for opening new branches.

Indirect interventions may also take place after the expiry of the deadline, the central bank executive added.

“The PCBs will have to bring down their CDR within the prescribed limit gradually by the deadline,” a BB official said, adding that the central bank will monitor the performance of the banks in line with their plans, which the latter are supposed to submit within this month.

Besides, the banks have been asked to align their credit growth with deposit growth for minimizing the mismatch between their assets and liabilities by June 30 this year.

Credit growth of all 47 scheduled banks reached 29 per cent as on February 3 while deposit growth stood at 22 per cent, according to the central bank statistics.

“The banks will have to align their credit and deposit growth within the timeframe without affecting credit flow to the priority sectors like food grains and petroleum products imports,” another BB official said.

He also said the central bank wants the banks to keep their credit growth in line with the deposit growth following strictly the existing assets and liabilities management guidelines.

Most of the PCBs will discourage credit to ‘unnecessary imports’ aiming to brining down their CDR at the rational level with the stipulated timeframe.

“The PCBs will follow defensive credit policy this year instead of aggressive one to comply with the central bank rules and regulations properly,” an executive of a leading PCB told BBN in Dhaka.

BBN/SSR/AD-21Feb11-2:20 am (BST)