Deposits up, loans down

19 March 2014

Loan distributions in the banking sector have failed to keep up with a steady increase in deposits in the last one year.
The central bank's latest report on deposits and savings shows that at the end of January deposits in the banking sector had grown 16.68 percent, while loan disbursements had increased only 10.68 percent.
Experts and stakeholders see this as an outcome of poor investment climate, high interests on loans and increased opportunities to borrow from abroad.
According to Bangladesh Bank, at the end of January, banking sector deposits stood at Tk 5,796.41 billion, while at the end of Jan 2013 it was Tk 4,967.63 billion. At the same time, the banks have disbursed loans worth Tk 4,564.60 billion. In Jan 2013, they had disbursed Tk 4,124.13 billion as loans.
Zayed Bakht, the Research Director at the Bangladesh Institute of Development Studies (BIDS), told the investment climate was yet to fully recover from the recent political turmoil.
"Although there is no political unrest now, there is still some uncertainty. The number of utility connections hasn't reached the expected level and we are still reeling from the Hall-Mark crisis," he said.
Bakht, who is also a director of the state-owned Sonali Bank, said these were the reasons the banks were receiving deposits but remained unable to disburse them as loans.
Bangladesh Bank Chief Economist Hassan Zaman told there had been an impact on the market as borrowers had been given new opportunities to take loans from abroad.
"This is an expected outcome. It will help push down interest rates to some extent," he added.
Helal Ahmed Chowdhury, the Managing Director of Pubali Bank, said there was a slump in the demand for loans.
"Besides that, the banks are a little cautious about handing out loans. Also, the foreign loan opportunities have had a role to play," he said.
According to latest central bank data, the loan-to-deposit ratio was 71 percent. According to the prevailing rules, the banks can disburse up to 81 percent of the deposits.
Faced with the shortage of loans, banks have been diverting their capital to government securities. Compared to Jan 2013, the banks have raised their investments to this sector by 35 percent.
According to Bangladesh Bank, at the end of January, banks' investment in this sector Tk 1,509.13 billion. At the end of Jan 2013, this was Tk 1,110.74 billion.
In 2011-12 fiscal year, foreign loans worth $ 1.04 billion came into the country, while in 2012-13 it grew by 43 percent to $ 1.82 billion.

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