Bangladesh Bank to Control on Non-Productive Credit

October 29, 2008 by D-8 Secretariat

Worried by high growth in credit to non-productive sectors, the Bangladesh’s central bank in a policy shift will ask commercial banks for lending the sectors that generate employment, farm and industrial output, as reported by Bangladesh media sources.

Bangladesh Bank (BB) sits today with different banks to convey this message to squeeze non-productive lending to a certain extent in the backdrop of the debacle in the Western economies due to huge credit inflow for housing and consumers spending.

According to a BB review of internal credit situation during June 2007-June 2008, the private sector witnessed a robust growth in non-productive sectors like credit card, consumer products, apartment buying and land purchase, which the central bank considers ‘risky’. “It is really risky to continue credit to the non- productive sectors when the country is experiencing a double-digit inflation rate for years,” a BB high official remarked.

The break-up of the percentages of credit growth on non-productive fronts is : Credit cards-121 percent, consumer products-93.30 percent, land purchase-44.50 and flat procurement-44.12 percent.

As per BB statistics, in the specific period of last one year the average bank credit growth rate was 19.52 percent.Private commercial banks experienced the highest credit growth of 38.03 percent, while foreign banks witnessed 23.83 percent growth, specialized banks 15.31 percent and state-owned banks 7.63 percent.

BB sources said in line with the existing economic situation 20 percent credit growth is enough.

The central bank wants the banks to adopt a strategy for prioritising agriculture, small and medium enterprises, income generating and productive pro-poor sectors in lending.

The BB will also direct the banks during today’s meeting to maintain coherence between the growths of deposit and credit so that dependency on call money market is reduced.

International Monetary Fund and Asian Development Bank have also suggested a cut in credit growth of commercial banks to reduce the inflation rate.

D-8 Secretary General, Dipo Alam, suggested that in the 26th Commissioners Meeting in Istanbul on 16-17 December 2008, an agenda to bring together all Central Bank authorities from D-8 countries can be put forward. He said that in that meeting, the central bank authorities will have broader chance to discuss and seek solution to the global economic crisis the world is experiencing currently. “This will enhance the accuracy of presciption that should be applied to our member countries,” Alam said, noting that such a meeting was ever organized in Indonesia in 2006 to discuss the tactful policy to overcome economic crisis.

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