The Bangladesh Bank (BB) has further tightened its monetary policy by raising the level of general provisioning requirement for consumer financing by the commercial banks.
Under the new guidelines, the banks will have to maintain five per cent of unclassified loan amount for consumer credit under the general provisioning requirement, instead of the existing two per cent.
This means the commercial banks will have to set aside an amount equal to five per cent of the consumer loan under a separate account aiming at discouraging flow of credit to private sector.
The new rules will come into effect from December 31, 2005. Credit to private sector has marked a significant rise by 3.40 per cent in the first quarter of the current fiscal compared to the same period of the previous fiscal.
The central bank has already issued a circular in this connection and directed the chief executives of all scheduled banks to maintain the new provision for such financing.
"The issue has been reviewed further and it has been decided that the banks will be required to maintain five per cent of unclassified loan amount as part of general provisioning instead of two per cent, for consumer financing," the central bank said in its circular. "Consumer financing is one of the important components of the private sector credit," a BB senior official told the FE Wednesday. The central bank wants to discourage unproductive imports, especially those of luxurious commodities, to ease the pressure on the inter-bank foreign exchange market, he added.
Currently, some commercial banks have been facing the problem of payments against letters of credit (LCs) for imports in the recent months due to the short supply of the greenback in the inter-bank market. He also said the new provisions will help mop up surplus fund flow from the banking system.
Reserve money recorded a sharp rise of Tk 17.35 billion or 5.87 per cent during July-September period of the current fiscal compared to the increase of Tk 8.41 billion or 3.20 per cent during the same period of the previous fiscal.
The lending rates on consumer financing are likely to increase further mainly due to the hike in the ratio of general provisioning against consumer financing, sources in the banking sector said.
However, the banks are now offering their lending rates on consumer credit in the range between 11 per cent and 18 per cent while export credit is fixed at seven per cent, sources in the BB said.