Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has directed the commercial banks to avert loan concentration in single big groups or sectors through diverting their investment portfolios for minimizing risks.

The instruction were made at a meeting of bankers, held at the central bank headquarters in the capital on Sunday with Bangladesh Bank (BB) Governor Fazle Kabir in the chair.

The BB’s latest moves came against the backdrop of rising trend in consumer financing by the banks in 2016 amid falling lending rates and rising purchasing power of the country’s middle-class people.

Consumer credit rose 28.22 per cent year on year to BDT 369.83 billion in 2016 from BDT 288.43 billion a year ago, the BB data showed.

The central bank advised that the bankers take careful measure for financing in consumer products, particularly lifestyle ones, to avoid loan-concentration risk, according to officials.

“We’ve advised the bankers to move up carefully about consumer financing,” SK Sur Chowdhury, deputy governor of the central bank, told reporters after the meeting.

He also said the banks had been asked to avoid loan concentration with a group as well as sector in order to minimise risk.

“The banks may face risk if loans are concentrated in a particular sector or a business group,” the deputy governor explained.

Meanwhile, the overall asset quality of the country’s banking sector deteriorated slightly in 2016 while nearly 46 per cent of the total default loans are concentrated in three sectors.

Mentioning loan concentration in different sectors, including readymade garment (RMG) and commercial loans, the BB government asked the bankers to look into the issue properly.

The three sectors — readymade garment (RMG), large-scale industries and commercial loans — shared 45.8 per cent of total concentrated default loans.

The highest level of classified loan concentration has taken place in the commercial loans covering trade and commerce, standing at 23.4 per cent in 2016.

It was followed by 12.6 per cent and 9.8 per cent respectively in RMG and large-scale industrial credits, according to the BB’s latest Financial Stability Report (FSR).

The total outstanding loans in the banking sector rose to BDT 6737.2 billion in 2016 from BDT 5846.15 billion a year before. It was BDT 5178.37 billion in 2014.

At the same meeting, the banks have been advised not to mention the names of specific universities or subjects from now on for recruitment of officials, particularly Management Trainee Officer (MTO) and Probationary Officer (PO).

Under the new provisions, thousands of competent graduates who were previously disqualified for applying due to their subject field or university will now be able to have a crack at it.

About new provisions on bank officials’ recruitment, the deputy governor said an increased number of candidates will get the opportunity to compete for jobs.

BBN/SSR/AD