Eleven banks – 10 private and one state-owned – have violated loan disbursement limits even after the central bank increased their lending capacity in the wake of the Covid-19 pandemic.
According to the latest central bank guidelines, a bank can lend up to Tk87 against a deposit of Tk100 while those operating under Sharia law are allowed to invest up to Tk92.
The advance-deposit ratio (ADR) at the state-run BASIC Bank stood at 90.96%, according to a Bangladesh Bank report for January this year.
Among private lenders, the loan exposure against deposit was 89.64% at AB Bank, 91.7% at National Bank, 97.76% at Padma Bank, 87.75% at NRBC Bank and 88.30% at the foreign-owned Bank Al-Falah.
Of the Sharia-based lenders, ADR was 96.65% at Exim Bank, 94.21% at Fast Security Islami Bank, 92.15% at Global Islami Bank, 96.20% at Union Bank and 96.14% at Pubali Bank's Shariah branch.
AB Mirza Azizul Islam, finance adviser in the last caretaker government, said higher loan exposure compared to deposits creates risk for banks.
"The loan recovery of banks is not very satisfactory now. In such a situation, if defaulted debt increases through additional lending, it creates risks for depositors," he said. "Therefore, it is necessary for the central bank to intervene in this matter."
AB Mirza Azizul Islam said the Bangladesh Bank should look into why some banks violate the loan disbursement limits and decide what action could be taken against them.
Officials at the central bank said the lenders were given the scope five times to adjust their ADR but even then a number of them did not follow the course.
Since March 2020, economic activities in Bangladesh, as in many other countries, have been limited due to the Covid-19 pandemic. In such a situation, the central bank increased ADR by 2% to accelerate the flow of credit to the private sector.
Syed Mahbubur Rahman, managing director and chief executive officer (CEO) of Mutual Trust Bank Limited, expressed his concern about the excessive loan disbursements by a number of banks.
"Banks that have exceeded the ADR limit will not be able to repay their depositors if the lenders default for any reason," he said. "That is why we have to follow the rules of the Bangladesh Bank. To fix it, banks have to reduce their loan disbursement and at the same time increase deposits."
Although ADR in the conventional banking of Pubali Bank is normal, the ratio in the Sharia branch has exceeded the limit.
"In 2021, we gave out a lot of loans. Our loan portfolio is growing. However, our deposit growth did not keep pace with the advance growth, which has led to an increase in the ADR," Safiul Alam Khan Chowdhury, managing director and CEO of the bank, told TBS. "But we have deliberately increased the ADR because without this we could not make a profit. We are trying to maintain the asset quality as we increase the debt."
The Pubali Bank CEO claimed that the bank did not have significant debt defaulters in the last few years.
"ADR of our Shariah branch has increased a bit. It will be fixed soon," he added.
Asked about this, Sirajul Islam, executive director and spokesperson of Bangladesh Bank, said, "What we pay more attention to is whether there is any bank staying above the ADR limit for a long time. If there is any, we monitor why it exists."
For example, in recent times, a private bank has been banned from lending unless its ADR is reduced, he said. "In this way, we are taking action against those whose irregularities are detected."
According to the central bank's report, the total deposits in the country's banks stood at Tk15.43 lakh crore till January 27 this year. Of this, Tk12.34 lakh crore has been disbursed, which is 73.70% of the total deposit.