Shawdesh Desk:

Bangladesh Bank on Wednesday announced for the first time a yearly monetary policy instead of a half-yearly one, lowering drastically the private sector credit growth target while raising sharply the public sector credit growth target for the current financial year.

BB governor Fazle Kabir unveiled the monetary policy statement for the FY 2019-2020, breaking with the tradition of announcing half-yearly policy, at a press conference held at the BB headquarters in capital Dhaka.

The MPS set the private sector credit growth target at 13.2 per cent for the first half (July-December) of FY20 and 14.8 per cent for the full year against the 16.5 per cent growth target set for the previous fiscal year (FY 2018-19).

The public sector credit growth target was set at 25.2 per cent for the first half and 24.3 per cent for the whole year against the 21.1 per cent growth target set for FY19.

Kabir on Wednesday faced the media after months amid criticisms about the central bank’s failure in reigning in soaring non-performing loans in the country’s banking sector and worsening situation of the non-bank financial institutions.

Mentioning the monetary policy as ‘cautiously accommodative’, he said that the projected credit growth targets would be sufficient for achieving gross domestic product growth and inflation targets projected in the national budget for the current fiscal year.

He said the GDP growth could be above 8.2 per cent in FY20 considering the attainment of 8.13 per cent economic growth in FY19 with just 11.29 per cent private sector credit growth.

The MPS will also facilitate the government’s budgetary target to keep inflation within 5.5 per cent, he said.

Former BB deputy governor Khondker Ibrahim Khaled, however, told New Age that achieving even the projected 14.8 per cent private sector credit growth would be difficult based on the existing unstable state in the banking sector.

He expressed doubt whether the projected credit growth would be sufficient to support the budgetary growth target.

Khaled also apprehended that the private sector credit growth might fall far below the target.

Speaking about the BB’s decision to announce monetary policy once a fiscal year, the former central banker said, ‘Considering the basic principle of projection, MPS twice in a fiscal year is a better option as there are fewer chances of miscalculations. The projection for a full year could result in higher number of errors.’

Policy Research Institute executive director Ahsan H Mansur told New Age that the private sector credit growth projection by the central bank was the reflection of the reality in the banking sector.

The banking sector is currently mired in scams and banks are grappling with record amount of defaulted loans.

Ahsan said that the private sector credit growth could be even lower than the projection.

In general, the existing banking system is not growth supportive, Mansur said, adding that given the current situation in the banking sector, the monetary policy was trying to minimise the impact of the banking sector woes.

Speaking about the MPS once in a year, he said that there should be quarterly review on the monetary policy so that stakeholders could get direction regarding the MPS.

Fazle Kabir said that there was no significance of MPS twice in a fiscal year as the central bank addressed issues when required without waiting for the announcement of MPS.

He, however, said that the central bank would publish review on MPS periodically.

Kabir, however, mentioned that the projected credit volume of the government would be lower as credit to the private sector would be much higher (7.3 times) compared with the credit to the public sector.

‘The credit to the government would be required for strengthening the financing to facilitate new investment programmes for achieving high economic growth,’ he said.

Speaking about the slow private sector credit growth in FY19, he said there was no liquidity shortage in the market; rather the total excess liquidity in the country’s banking sector was Tk 85,616 crore at the end of June, 2019.

He, however, said some banks had excess liquidity and some did not have.

To deal with the issue, the central bank has call money market along with the facility of repurchase agreement, the BB governor said.

Banking reform adviser Shitangshu Kumar Sur Chowdhury claimed that the private sector credit growth had dropped due to the central bank’s emphasis on issuance of quality credit and prevention of aggressive lending.

The private sector credit growth target could be changed midway of the fiscal year if demand for quality credit is found high, he said, adding that the issue of liquidity crisis in a number of banks surfaced due to serious mismatch between assets and liquidity.

Asked how the directors of the financial institutions who swindled money were still holding directorship in other banks, Bangladesh Bank deputy governor SM Moniruzzaman said, ‘Such people are no more in the boards of financial institutions. But they are yet to be removed from the boards of the banks as they could hold the posts until they are convicted of wrongdoings.’

For now, the central bank has nothing to do with their position in the banks’ boards, he said.

In reply to a question what was the BB’s stance on the financial institutions which failed to replay depositors’ money, Moniruzzaman said, ‘Although the responsibility falls on the individuals who are taking and keeping deposits as per the financial institutions act, the central bank is giving policy support along with advices so that the depositors can get back their money.’

In reply to a question on the rescheduling of loans with a meagre amount of down payment, Fazle Kabir said that such facilities were given to ensure recovery of loans and to keep the operation of projects running as it had many benefits.

He also mentioned that the monitoring system of the central bank was improving based on the requirement although it was blamed over the course of time that the BB’s monitoring was becoming weak.

In MPS for FY20, the BB kept cash reserve ratio and statutory liquidity ratio unchanged at 5.5 per cent and 13 per cent respectively.