Making vault payment difficult for 16 banks

16 banks have put themselves in danger by distributing excessive loans against customer deposits. Some of these banks have issued loans greater than 100% of their deposits and are now facing a crisis. According to data from Bangladesh Bank, as of December, excessive lending practices of nine conventional banks have resulted in a total of Tk 62,640 crore in loans. Islamic banks have issued loans amounting to Tk 53,793 crore , beyond the allowed limit.

Recent information from Bangladesh Bank shows that due to reckless loan distribution and the inability to bring the loaned money back to the bank, there is a liquidity crisis, and small depositors’ savings are at risk.

As per regulations, banks are allowed to lend up to Tk 87 for every Tk 100 deposited. Islamic banks can lend Tk 92 for every Tk 100 deposited. However, as of December, these banks have violated the loan-to-deposit ratio (ADR) limits.

Among these, National Bank's loan-to-deposit ratio is 113.56%, Exim Bank's is 110.68%, AB Bank's is 98.54%, Janata Bank's is 94.66%, Basic Bank's is 92.62%, Standard Bank's is 95.14%, UCB's is 91.39%, IFIC's is 91.34%, Bangladesh Commerce Bank's is 140.05%, Union Bank's is 115.63%, First Security Islami Bank's is 128.5%, Islamic AB Bank's is 112.31%, Global Islami Bank's is 106.71%, and Islami Bank’s loan-to-deposit ratio is above 93%. After issuing these loans, it is now difficult for these banks to bring the money back into the vault.

Regarding this, Bangladesh Bank’s spokesperson Arif Hossain Khan said that although there is no strict rule limiting the Advance Deposit Ratio (ADR) or Loan Deposit Ratio, banks face liquidity crises. As a result, depositors' normal transactions are hindered. Even if the depositors’ money is recorded on paper, it may not be available in the vault. This is why it is mandatory for banks to follow the ADR. If any bank fails to comply, they will naturally face risks. However, due to the temptation of large profits, these banks have crossed the ADR limit and are now facing this crisis.

He added that despite repeated warnings to the banks, no effective action has been taken.

Financial sector analysts believe that Bangladesh Bank needs to take stricter actions in the interest of depositors. Dr Toufik Ahmed Chowdhury, former Director-General of the BIBM, called the situation unfortunate and said it is the responsibility of Bangladesh Bank to stop this. He believes that the regulatory body needs to increase punitive measures. Banks have been violating the rules for a long time and should be fined. Had these banks followed the rules, they wouldn’t have been in such a weak position. Using short-term loans to finance long-term investments has put the banks at risk.

In the event of a closure of any conventional bank, the central bank guarantees a compensation of up to 2 lakh taka for depositors. However, analysts believe that to keep the banking sector dynamic, Bangladesh Bank must take stricter punitive measures against banks that have jeopardized depositors' savings by giving out irregular loans. This would protect the long-term interests of both depositors and banks.