Published at: Dhaka Tribune, Jul 06, 2019
Advance-to-deposit ratio (ADR) of the country’s private commercial banks increased further by 0.3 percentage points at the end of March this year amid a slow growth in deposits and rising non-performing loans in the banks.
As per the Bangladesh Bank’s January-March quarter report published on Thursday, ADR of the PCBs increased to 86.2 percent at the end of March this year from 75.9 percent three months ago.
High ADR represents high risks for the banks and that’s why the BB lowered the ADR of the banks to save them from financial risks as many of the banks had issued credit aggressively in the year of 2017 to maximise profits, BB officials said.
The BB report also showed that the private commercial banks (excluding the Islamic banks) faced Tk 620 crore in shortfall in maintaining cash reserve ratio (CRR) at the end of March this year due to a poor growth in deposits.
Banks are supposed to keep 5.5 per cent of deposits they receive from customers with the central bank as CRR.
The banks were supposed to maintain Tk 28,990 crore CRR with the central bank but the entities managed to maintain Tk 28,380 crore CRR with the central bank. They maintained Tk 2,520 crore additional CRR at the end of December, 2018.
Another BB report that was released in June this year mentioned that ADR of the banks increased as the growth of loans and advances continued to outpace the deposits growth in the year.
Thursday’s BB report said that overall growth in deposits in the country’s banking sector was 11 per cent year-on-year in March this year against a 13.2-per cent increase in credit growth at the end of March last year.
In the private commercial banks, deposit growth was 11.9 per cent year-on-year at the end of March this year against 13.4 per cent credit growth at the end of March last year.
As the growth in deposits was lower compared with the credit growth, the ADR of the banks increased further, BB officials said.
Besides, higher provisioning requirement for the banks against the defaulted loans was another reason for the rise in ADR, they said.
At the end of March this year, the amount of NPLs in the banks increased to Tk 1,10,873.54 crore from Tk 93,911.4 crore three months ago.
In January, 2018, the central bank asked all the conventional banks to keep ADR within 83.5 per cent and the Shariah-based Islamic banks were asked to contain ADR within 89 per cent.
Earlier, the limit was 85 per cent for the conventional banks and 90 per cent for the Islamic banks. Banks, which had high ADR, were initially asked to adjust their ADR by December last year. The BB, however, extended the deadline twice till September this year amid intensifying competition among the banks to collect deposits at higher rate for the adjustment of ADR.
As per the BB’s latest report, ADR of 22 banks was above the limit. The number of banks which had failed to keep ADR within the limit was 11 in January last year when the fresh limit was imposed by the central bank.
Apart from the private commercial banks, the overall ADR in the country’s banking system also increased in the January-March quarter.
ADR of the banking sector increased to 78.3 per cent at the end of March this year from 77.5 per cent at the end of December last year. The ADR was 71.9 per cent in December, 2016 when the deposit growth in the banks was 10.6 per cent.
Although the overall ADR of the banking sector increased in the January-March quarter, it was consistent with the BB-set limit.
Disclaimer: The original publisher, as mentioned above, holds the responsibility for the content. Hence, BizDataInsight doesn’t hold the accountability.
