BANGLADESH Bank has frozen Tk 51 crore from ONE Bank’s current account and Tk 25 crore from Premier Bank as a restraining devise to stop their aggressive lending practices which has already taken them past the permissible limit of advance-deposit ratio (ADR). The huge number of banks in this small economy is simply racing to grab clients and in doing so they are breaching the lending regulation to a level of high risk. The mad race among the established and new banks has led to immoral practice, making the entire banking sector ailing. When the prime eligibility of opening a bank is ‘political obedience’ the system is bound to fall in trouble and that’s happening in the country right now.
As per BB rules, conventional commercial banks are not allowed to lend more than 85 percent of their deposits. In the second week of November, ONE Bank’s ADR stood at 90 percent and Premier Bank’s 88 percent. The Central Bank had asked the two banks to bring down their loan to deposit ratios within the regulatory limit but they failed to do so. It has then blocked the said amounts from the deposit with the Central Bank on December 17 in line with the Bank Company Act, 1991 — a first incident in case of private commercial banks. The penalty means the banks will not be allowed to show the blocked amount as cash reserve ratio and they will not enjoy any interest in the sum. It is a rare move taken by the Central Bank.
Premier Bank had recently appealed to the Central Bank not to freeze any amount. The Central Bank also warned two more banks – Islami Bank Bangladesh and Union Bank – of the same consequence if they did not check their reckless lending. For Islamic banks and Islamic wings of the conventional commercial banks, their loan and deposit ratio can go up to 90 percent, but the two bank’s ratios have gone beyond this ceiling. The Central Bank’s enhanced vigilance comes as Farmers Bank recently plunged into the pits of liquidity crisis – an episode that has raised questions about the continued existence of the four-year-old bank.
The ongoing instability in the country’s banking sector has arisen due to government’s reluctance to check misuse and misappropriation of funds of state-owned banks such as Sonali, Janata, and BASIC bank and later forceful change of directors of Islami and Social Islami Bank under the government supervision. Particularly banks licensed in 2013 under political consideration are in mess but neither BB nor the government took steps to enforce professionalism in their management. It ultimately plunge them into trouble, what was clearly assumed earlier by economists.
We ask the Central Bank and the government to strongly regulate the banks and their loan operations so that they remain safe before going closer to a plunge. Depositors money must be well protected and the banking sector also needs stability to help smooth socio-economic growth. Any exception will be suicidal to the economy.
As per BB rules, conventional commercial banks are not allowed to lend more than 85 percent of their deposits. In the second week of November, ONE Bank’s ADR stood at 90 percent and Premier Bank’s 88 percent. The Central Bank had asked the two banks to bring down their loan to deposit ratios within the regulatory limit but they failed to do so. It has then blocked the said amounts from the deposit with the Central Bank on December 17 in line with the Bank Company Act, 1991 — a first incident in case of private commercial banks. The penalty means the banks will not be allowed to show the blocked amount as cash reserve ratio and they will not enjoy any interest in the sum. It is a rare move taken by the Central Bank.
Premier Bank had recently appealed to the Central Bank not to freeze any amount. The Central Bank also warned two more banks – Islami Bank Bangladesh and Union Bank – of the same consequence if they did not check their reckless lending. For Islamic banks and Islamic wings of the conventional commercial banks, their loan and deposit ratio can go up to 90 percent, but the two bank’s ratios have gone beyond this ceiling. The Central Bank’s enhanced vigilance comes as Farmers Bank recently plunged into the pits of liquidity crisis – an episode that has raised questions about the continued existence of the four-year-old bank.
The ongoing instability in the country’s banking sector has arisen due to government’s reluctance to check misuse and misappropriation of funds of state-owned banks such as Sonali, Janata, and BASIC bank and later forceful change of directors of Islami and Social Islami Bank under the government supervision. Particularly banks licensed in 2013 under political consideration are in mess but neither BB nor the government took steps to enforce professionalism in their management. It ultimately plunge them into trouble, what was clearly assumed earlier by economists.
We ask the Central Bank and the government to strongly regulate the banks and their loan operations so that they remain safe before going closer to a plunge. Depositors money must be well protected and the banking sector also needs stability to help smooth socio-economic growth. Any exception will be suicidal to the economy.
