CB credit ceiling will stump smaller banks

The recent credit squeeze by the Central Bank (CB) will impact on the 'smaller banks' and not so much their larger counterparts, according to industry experts.

"This is not so much of an issue for the larger banks as they operate on a bigger volume," an industry expert said, adding that for instance, the Commercial Bank had budgeted for a 23% growth portfolio in credit for this year.

Earlier this month, the CB in a bid to halt the 34% credit growth in licensed commercial banks (LCB) witnessed last year, brought in a directive saying that this year LCB credit shouldn't exceed 18% of their total credit outstanding of last year or Rs 800 million or whichever is higher. It also said that they can grant in excess of 18% this year, but it should only be up to 23% of their total credit outstanding of last year or Rs 1, 000 million, whichever is higher.

A Commercial Bank official told the Business Times that 16% of their bottom-line comes from Bangladesh and that the 23% ceiling won't affect them at all. "We have Rs. 300 billion in advances and some Rs. 100 billion in deposits, which places us on a good wicket," he added.

Another banker cautioned that there's a tendency such as credit cards, consumer lending of retailer credit being riskier with high interest rates in the current scenario. Noting that this move is not the best of economic strategies, he said that banks are now forced to raise deposit rates in a bid to increase deposits growth to expand their assets.

The Managing Director of a smaller bank noted that they grant around Rs. 2.8 billion as total credit for a year. "It was Rs. 150 million a month worth of demand for credit before this ceiling was imposed, but now it has dropped by Rs. 50 million a month," he noted. He said now the customer screening is stringent and they are quite concerned about the repayment capacity of customers.