BB raises H2 pvt sector credit growth target eyeing election

Bangladesh Bank on Monday unveiled its monetary policy for the second half of the current fiscal year while increasing the private sector credit growth target, in an election year when spending is likely to increase along with inflation.
In balancing the credit growth with the flow of money in the financial market, the central bank announced that it would cut the banks’ advance-deposit ratio.
BB set the private sector credit growth target to 16.8 per cent for January-June from the earlier projection of 16.3 per cent for the period whereas the private sector credit growth was 18.1 per cent in December, 2017.
Some BB officials had earlier expected that the central bank might keep the 16.30 per cent private sector credit growth target for the H2 considering the rising inflation, but it raised the target considering that the overall spending in the country would rise due to election this year. 
The central bank, however, will cut down the ADR for banks by 2-3 percentage points in a day or two to reign in aggressive lending by the banks.
While announcing the monetary policy for January-June, BB governor Fazle Kabir said that the twin challenges of inflation and balance of payment has emerged.
He said that the inflation rate could creep up to 6 per cent and the sudden jump in import payments had put pressure on balance of payment causing 2.5 per cent depreciation of the taka.
He, however, hoped that the inflation could be reigned in at around 5.5 per cent as the pressure would wane when the new crops hit the market while the pressure on foreign exchange would decrease with the drop in import payment over next few months.
Fazle expected that the GDP growth would reach 7.4 per cent as targeted by the government even if inflation hits 6 per cent. 
Internal loan supply growth target would remain unchanged at 15.8 per cent to sustain growth in investments and productive sectors, he said.
Speaking about the high private sector credit growth in July-December of FY18, Kabir said that it grew mainly due to increased food import during the period along with some one-off payments for some mega projects including Padma Bridge.
He hoped that the private sector credit growth would come down soon with harvest of new crops.
Besides, steps would be taken to encourage businesses to issue bonds instead of taking loans from the banks to get rid of excessive dependency on banks for long term financing, the BB governor said.
We are encouraging banks to bring funds from non-residents in the country for investment purposes, he said.
The central bank also kept its policy rates unchanged.
He said the central bank would issue a directive on advance deposit ratio (ADR) on Tuesday this week that would ask banks to cut the ADR by June.
He mentioned that around 20 banks would have to reduce ADR under the directive that would be issued in this regard and they will get time till June this year.
Due-diligence and increasing deposit would help banks to keep the DAR within the limit and would not create hurdle for the banks, he said.
The BB governor also mentioned that stringent actions would be taken if any high volume of loans disbursement was noticed by the central bank that seems to be inconsistent with institutional capacity of any entity.
Replying to a question regarding the recovery of stolen money from the BB’s reserve, the BB governor said that the recovery process was underway and a significant amount of fund has already been recovered, while another amount of around $ 50 million is yet to be recovered.
Remediation of the BB’s system has been going on in full swing in line with the suggestions made by the investigation committee on reserve heist and it would be completed within June this year, Kabir informed.
Asked whether the central bank supports the government’s fresh move to issue licences to new entities, the BB governor said that a bank among the fourth generation banks was facing liquidity crisis but the other banks were not facing similar problems.
It should not be any justification for not giving licence to any new bank. Rather we will assess whether there was any scope of issuing new licence and the final decision would be made by the board of directors of BB, he said.
Replying to another question, BB deputy governor SK Sur Chowdhury said that the entities that has availed loan rescheduled facility would face proper measures if their loan repayment becomes irregular again.
BB chief economist Faisal Ahmed admitted that there were some challenges in implementing the monetary policy. But the challenges are manageable.