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BB warns banks against rising classified loans

Sajjadur Rahman
The central bank yesterday warned 16 banks against a rise in their classified loans in recent months and asked them to bring down the amount immediately.
The instruction came at a meeting between the Bangladesh Bank (BB) and the Association of Bankers Bangladesh (ABB), a forum of chief executive officers of banks. Governor Dr Atiur Rahman chaired the meeting.
The average rate of classified loans of the country's banking industry is 6.57 percent, but the rate is much higher at some banks.
This type of loan has a high rate of borrower default, and raises the cost of borrowing money for the other customers, according to Investopedia.
“The governor also asked these banks to reduce credit growth, which is on the rise, and to control the advance-deposit ratio in line with the monetary policy stance," said the managing director of a private commercial bank who was present at the meeting.
The BB found the private sector credit growth increased to 19 percent now from 16 percent last month.
The governor also asked all commercial banks to settle accepted bills between them as per agreements.
Rahman said, recently a bank complained to the BB that four banks (accepting banks of bills) are not paying it the bills.
“We have cut the amount from those four banks and deposited it to the complainant bank,” the governor said in a statement.
Similarly, some other banks made such complaints and six banks have been given 10 days of time to settle those payments, said Rahman.
By accepting the bill or draft, a bank agrees to pay the face value of the obligation if the issuer bank (the drawer of the draft) fails to pay. By lending its name to the transaction, the accepting bank makes it easier for an importer or exporter to obtain trade financing. A bank, once it has accepted a draft, can either hold the paper until maturity or sell it in the money market.
The accepting bank assumes some risk, although in most cases the credit risk is minimal as banks generally deal only with tolerated companies. Maturities on accepted drafts generally range from 30 to 180 days; payment is due at maturity, which usually coincides with delivery of goods to the buyer. Recently, settlement of accepted bills has been getting delayed by many banks, according to BB officials who are getting a lot of complaints about the issue.
“I welcome the BB move. It would help repatriate money from abroad faster," said Anis A Khan, managing director of MutualTrust Bank.
Khan said a committee comprising the bankers was formed several years ago to deal with the issue.
The meeting also discussed interest rates for deposits and lending, antimoneylaundering issue and the growing pressure on the primary dealer banks.
The governor asked the CEOs to keep their promises they have made recently on the rates.
Tire ABB has set the maximum deposit rate at 12.5 percent and lending rate at 15.5 percent in the wake of a rapid rise in the rates after the BB withdrew its cap at the end oflastyear.