Despite Bangladesh Bank’s initiatives to promote good governance in the banking sector, 17 banks have recently violated their loan disbursement limits, and are now embroiled in a severe liquidity crisis. Having been over-aggressive in providing loans, they are now unable to recover the loans and attract new deposits as desired, according to a latest internal report of the central bank seen by UNB. The banks should not sanction any new loans until they restore the ratio of their loans to deposits in accordance with limits set by Bangladesh Bank, which regulates the financial sector.   Also Read: Banks' assets will decrease by 40% if international reporting standards followed: FRC Chairman Conventional banks can provide loans of up to Tk 87 for every Tk 100 in deposits, while Shariah-based banks can give loans of up to Tk 92 against every Tk 100 in deposits, according to the rules of Bangladesh Bank. This is called Advance Deposit Ratio (ADR) or loan-deposit ratio limit in banking terms. According to the central bank report covering January 1-26 of this year, 17 banks violated the limits set for them on lending order due to lack of discipline. As a result, the concerned banks have been plunged into an extreme liquidity crisis, making it difficult for them to sanction new loans. Some of them are even unable to pay depositors in some cases. Experts fear that the existing situation has created additional risks for depositors. According to them, irregularities, corruption and ‘ghost loans’ - loans to firms that turn out to be non-existent -are behind the collapse of the banking system’s loan disbursement process. Also Read: Prime Bank receives $50m from IFC to support trade, forex liquidity needs in Bangladesh “In the banking sector, there have been allegations of giving large amounts of ghost loans in recent times. If this continues, the sector will be at risk,” said Dr ABM Mirza Azizul Islam, economist and adviser on finance to the last caretaker government. Mirza Azizul told UNB, "Lending beyond the limit against deposits disrupts the credit system." Besides, the debt collection situation of the banks is not satisfactory now. In such a situation, if the non-performing loans increase further with additional loans, then there is a danger for the bank and its depositors will suffer, he added. He suggested the intervention of the central bank in these banks immediately. Also Read: BB signs deal with 32 banks to accelerate disbursement of green fund According to the Bangladesh Bank report, the ADR of National Bank Ltd stood at 98.23 while that of AB Bank was 96.64 in its conventional stream and 103.45 in its Shariah stream. State-owned Basic Bank’s ADR stood at 91.17, One Bank’s was 89, and multinational National Bank of Pakistan’s was 87.52. Widespread irregularities and corruption have already been reported in these banks. Apart from this, Community Bank's ADR was 88.28, NRB Bank’s at 88.05 and IFIC Bank's ADR was 87.48, the report states. Shariah-based Exim Bank's ADR stood at 100.28, Standard Bank's at 96.28, Premier Bank's Islamic Window 155.09 and Bangladesh Commerce Bank's Islamic Window's ADR was 133.26. Read More: Banks’ transaction time from 9:30 am to 2:30 pm for Ramadan Apart from this, the ADRs of five other Shariah-based banks ranged between 93.01 to 104.54. A managing director (MD) of a private bank told UNB that the lending limit has undoubtedly been set by Bangladesh Bank based on adequate research and global best practices. No bank should have to cross the limit. “These violations are creating risk in the banking sector. Depositors in particular will be at greater risk. Already some banks and non-bank financial institutions are not able to return money to depositors,” he said, maintaining anonymity. The central bank has also extended the period of ADR adjustment five times to allow the banks to bring their lending practices in line with the limits. Read More: BB disburses Tk 4000 crore as liquidity support to 5 Islami banks However, many banks could not coordinate this. In such a situation, Bangladesh Bank even increased the required ADR to improve the overall liquidity situation of the banking sector to maintain the pace in credit flow to the private sector. The executive director and spokesperson of Bangladesh Bank, Md Mezbaul Haque, told UNB that although some banks may at times find themselves in violation of the ADR set for them, the central bank would under normal circumstances give them time to get themselves back within the limit. “But if they stay outside the limit for long, then they must be warned and action would be taken accordingly,” Mezbaul said. Read More: One of Silicon Valley's top banks fails; assets are seized

Prime Minister Sheikh Hasina on Thursday (November 24, 2022) categorically denounced “rumours that banks are facing acute liquidity crisis”. “It’s a blatant lie that there is no money in the banks,” she said while addressing a massive public rally at the district stadium in Jashore, organised by local Awami League. Sheikh Hasina said that on Wednesday (November 23, 2022) she had a meeting with Bangladesh Bank governor and other concerned officials. “There is enough money in the banks,” she assured. Read more: PM’s Japan visit will happen soon, Shahriar Alam says She said that some people are talking about forex reserves. “There is no problem with forex reserves,” she added. She also said that some people are spreading a lie that there is no money in the banks, and paying heed to that rumour, some are withdrawing money from banks. “If you withdraw money from banks and keep it at home, thieves will be encouraged to steal the money. It is just creating an opportunity for the thieves,” she said. She said that remittances are coming in, foreign investments are happening, export income has gone up, and tax collection has been increased as well. Read more: PM reaches Jashore, speaks at President Parade in BAF Academy “While other countries are facing serious debacles due to global recession, Bangladesh is still going strong,” she said. She urged people not to pay heed to any rumour. “It is BNP’s job to spread rumours all the time, you know that,” she added. The prime minister said that BNP had never done anything for the welfare of the country and its people. “They have always engaged in looting when they were in power,” she said. She mentioned that during its 2001-06 tenure, BNP left foreign currency reserves at USD 2.5 billion only. When AL formed the government in 2009, forex reserves were USD 5 billion after the caretaker government’s regime. Read More: No liquidity crisis in banks: ABB During the coronavirus pandemic there was no export and import, as a result forex reserves accumulated to USD 48 billion, she said. Sheikh Hasina, also the AL president, said to procuring Covid-19 vaccines, fertiliser, rice and wheat for the people, the government has spent money. “It (forex reserve) did not go anywhere, it was spent for the welfare of the people,” she said. “We have invested in various works, giving stimulus for export, agriculture and giving deficit money which accumulated up to USD 8 billion,” she said. Read More: No forex crisis from Jan 2023, Bangladesh Bank Gov says  AL general secretary Obaidul Quader, AL MP elected from Khulna Sheikh Helal, AL presidium members Md. Abdur Razzak, Piyush Kanti Bhattacharya and Jahangir Kabir Nanak also spoke at the rally. Jashore District AL president Shahidul Islam Milon presided over the rally. District Awami League General Secretary Shahin Chaklader conducted the Jashore rally.