Eleven banks – including five Shariah-based Islamic banks – breached the rules of Advance Deposit Ratio (ADR) in December 2023, which means these banks aggressively lend to their borrowers.
The banks that crossed the ADR limit are – FSIBL at 118.45 per cent, IBBL at 102.74 per cent, GIBL at 99.82 per cent, Exim Bank at 96.84 per cent, SIBL at 95.67 per cent, Standard Bank at 93.69 per cent, National Bank at 98.71 per cent, IFIC Bank at 89.55 per cent, Trust Bank at 89.29 per cent, and Southeast Bank at 88.35 per cent.
Currently, banks are required to maintain an ADR of 87 per cent for the conventional banks and 92 per cent for the Shariah Islamic based banks. It means that conventional banks can lend Tk 87 against a deposit of Tk 100, while Shariah-based banks Tk 92.
Insiders think that Advance Deposit Ratio (ADR) is considered as a barometer of progress of all financial institutions. When a bank crosses the ADR limit, it is in a risky zone, as per industry insiders.
In most cases, those banks are facing a liquidity crisis due to crossing the ADR limit. Currently, Shariah-based banks are currently facing a liquidity crisis. They have been unable to maintain the cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR) every day.
The central bank has been providing liquidity support to these banks for one and a half years.
Both traditional and Islamic banks have to maintain a Cash reserve ratio (CRR) of 4 per cent, as per the central bank rules. However, traditional banks have to maintain a Statutory Liquidity Ratio (SLR) of 13 per cent, while Islamic banks only 5.5 per cent.
Emmanuel Haque, managing director and CEO of the Dhaka Bank, told The Business Post, “Crossing the limit of ADR means these banks are not complying with the rules of the Bangladesh Bank.
“We observed that the central bank has been continuously supporting some of the banks. That means the bank did not properly plan to lend to their borrower as well. Usually, the management team of a bank has faced pressure from the board for loan disbursement.”
He added that the permission cannot be approved for lending all the time. Banks have to make a proper plan for which loans will be permitted for disbursement. Aggressive lending is not only worse for a bank but also for the whole banking sector.
Dr Zahid Hussain, former a lead economist in the World Bank Dhaka Office, said, “A deposit is a liability for a bank. So a bank cannot provide an incursive loan, because this practice is not permitted by the Bangladesh Bank.
“In our country, powerful people take loans from the banks and do not pay them back. The Bangladesh Bank is regularly monitoring them. The central bank should have taken action that breached the rules.”
He added, “It is concerning for the economy and banking sector, because the management of the bank could not recover money from the borrowers as well. If the authority is able to recover the loan timely, then excess lending will not be bad for the sector.
“But unfortunately powerful people are not paying back the money to banks.”
On condition of anonymity, senior central bank officials said these banks are facing an extreme liquidity crisis. Even these Shariah-based Islamic banks are not complying with the rules and regulations of the central bank as well.
The whole banking sector is suffering for some of the Islami Shariah-based banks due to irregularities.
