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Political impasse eats into banks' business

Bankers also blame taking loans from foreign sources

Sajjadur Rahman
Lending by banks continues to shrink due to the ongoing political deadlock, Bangladesh Bank data shows.
The loan-deposit ratio (LDR), an important signifier of the demand for money, has been on a declining trend for the past one year. As of September, LDR of the banking industry stood at 71.65 percent, meaning that a bank has lentTk 71.65 against a deposit of Tk 100. The ratio was 77.85 percent in September last year.
In 2010-11, the demand for money
had reached so high that the LDR crossed over 100 percent for many banks, violating the BB approved benchmark of 85 percent.
Apart from the traditional
reasons of energy and infrastructure deficiencies and global economic slowdown, bankers attribute this sluggish business trend to political uncertainties.
"We have around Tk 1,500 crore sanctioned loans, both funded and non-funded, but borrowers are unwilling to take the money at the moment," said Helal Ahmed Chowdhury, managing director of Pubali Bank.
It seems businesses have taken a 'wait-and-see' policy before taking on these loans, he added. NCC Bank is also sitting on over Tk 1,200 crore of approved loans, which are yet to be taken by borrowers.
Nurul Amin, managing director of NCC Bank, blamed high borrowing costs and businessmen's tendency to take loans from foreign sources for their poor business condition.
"Political uncertainties and infrastructure constraints are traditional causes, but sourcing loans from foreign sources worth nearly $2 billion (between 2011 and 2013) are impacting our business," said Amin, also the chairman of Association of Bankers Bangladesh, a forum for banks' managing directors.
It is not only Pubali or NCC banks that are flush with funds. All banks in the country have more or less sanctioned loans that are not taken by borrowers.
At the end of July, the banking industry’s excess liquidity reached over Tk 82,000 crore, including its exposure to treasury bonds and bills. Of this excess liquidity, overTk 30,000 crore are lendable, but banks are unable to. Private sector credit growth went down to 11 percent in fiscal 2012-13 compared to nearly 20 percent in the previous fiscal year.
Non-performing loans of the banking industry reached nearly 12 percent by the end of the second quarter of 2013 from 8 percent in March.
The business community, however, says the high lending rates — 16-20 percent -- have been keeping them from taking up bank loans. On the other hand, bankers said they cannot reduce the rates unless the cost of fund falls and the government reduces the return, which is over 12 percent, on its savings certificates.
"I am not taking high-cost approved loans in this very risky business condition. I want to see what happens in the next few months before making any big investment," said Nasiruddin Biswas, chairman and managing director of Nasir Group of Industries.