MACROECONOMIC SCENARIO1

GDP growth of Bangladesh in FY13 reduced marginally to 6.03% from 6.2% in FY12. Disruptions caused by
political strife, inadequate power, gas and infrastructure facilities were the key factors in the growth slowdown.
However, macroeconomic situation in Bangladesh has been quite stable for a considerable period of time in
recent years and proved resilient to global financial crisis posting GDP growth rate averaging 6.2 percent during
the past five years. Recovery in remittance growth contributed to sustaining private consumption growth which
combined with a significant rise in public investment and robust increases in exports helped maintain GDP
growth above the average 5 percent growth in developing countries in 2013.
Slower growth reflects decline in both agricultural and service sector growth. Growth in agriculture sector
declined from 3.1 percent in FY12 to 2.2 percent in FY13. Services sector growth decreased to 5.7 percent in
FY13 from 6.0 percent in FY12 affected mainly by lower growth of wholesale and retail trade sub-sector. Growth
came largely from construction and manufacturing. Industry sector grew slightly more at 9.0 percent in FY13
compared to 8.9 percent in FY12 driven in large part by faster growth in mining and quarrying, construction and
small scale industries.
Annual average inflation declined from 8.7 percent in FY12 to 6.8 percent in FY13 reflecting a decline in both
food and non-food prices. Softer international prices helped reduce food inflation. A steady decline in non-food
inflation during the second half of FY13 also contributed to fall in average inflation. The conduct of monetary
policy improved remarkably in FY13, which helped to reduce non-food price increase.
The external trade deficit decreased significantly due primarily to an increase in export growth over FY12 and
flat import payments. Total exports in FY13 had a strong growth over the same period of FY12. Aggregate
exports increased by 11.2 percent in FY13. Apparels (woven garments and knitwear products) continued to
occupy an overwhelming share of the export basket in FY13 followed by jute goods, home textile and frozen
foods. However footwear sector achieved substantial export growth in FY13. Woven and Knit garments
experienced 15 percent and 10.4 percent export growth respectively. Import payments (fob) registered a
marginal growth of 0.8% in FY13. Major import item was petroleum related product followed by textile products,
iron, steel & metal products and raw cotton.
Disbursement of industrial term loans during FY13 increased by 17.05 percent and reached BDT 425.28 billion
over the period of FY12. Large scale industries received major portion of disbursement (65.73% of Total).
However disbursement of small scale and cottage industries experienced 20.25 percent growth and reached
BDT 29.99 billion. On the Other hand, recovery of industrial term loans recorded 17.27 percent increase.

MONETARY & FINANCIAL DEVELOPMENT1

Broad money (M2) recorded lower growth of 16.7 percent in FY13 against the targeted growth of 17.7 percent.
The growth in broad money was attributed mainly by the growth in net foreign assets (NFA) resulting from
robust growth in remittance and low import growth. Total liquid asset of the scheduled banks stood at BDT
1741.71 billion against required liquidity of BDT 947.30 billion at the end of June 2013. Total domestic credit
growth declined from 19.2 percent in FY12 to 10.9 percent in FY13.
At the end of September 2013, the growth rate (year-on- year) of deposit (16.5%) remained higher than that of
advances (7.4%) as results, advance-deposit ratio (ADR) in the banking sector remained far below the approved
ceiling as well as its average value for the last eight years. AD ratio was 71.7% at the end of September 2013.
Monthly weighted average call money rate rose from 7.17 percent in June 2013 to 8.11 percent in August 2013
and then it decreased to 7.44 percent in September 2013 reflected easing of liquidity pressure in the banking
system. The weighted average nominal (takadollar) exchange rate appreciated from BDT 81.7 = $1.00 at the
end of September 2012 to Tk77.8 = $1.00 at the end of September 2013 (an appreciation of about 5.0%).
Bangladesh Bank occasionally intervened in the interbank foreign exchange market to limit the excessive
volatility in the exchange rate.
Total deposit liabilities (excluding interbank items) of the scheduled banks increased by 11.29% during the first
three quarters of 2013 and reached BDT 5572.41 billion at the end of September 2013. More than 50% of the
total deposit shared by private sector banks (PCB) followed by state owned banks (SCB) and foreign banks
(FCB). Private sector credit of the scheduled banks experienced a sluggish growth of 5.36 % at the end of
September 2013. Credit growth declined significantly mainly due to investment uncertainty resulted from
political instability ahead of national general election and more stringent lending practices by the banks.
Economic purposes classifications of private sector credit show that major portion of bank advances belonged
to trade financing at the end of 3rd quarter of 2013 followed by advances to industry sector and working capital
financing.
The interest rate spread of the banking system narrowed to 4.97% in November 2013 from 5.13% in January 2013.
The weighted average lending rate dropped to 13.42% at the end of November 2013 from 13.73% at the end of
January 2013. The weighted average deposit rate also declined to 8.45%, from 8.60% in the same period.
A series of financial scams and resultant loan defaults in the state-owned commercial banks (SCBs) and in few
private commercial banks (PCBs) moved them into vulnerable situation. At the end of September 2013, the
gross NPLs of the banking system accounted for 12.79% of outstanding loans compared with 10.03% in

Source: Please see annexure.

CRAB I CRAB Ratings on Bank Credit Digest I

Page 1 of 2

December 2012. Gross NPL ratio of SCBs experienced a sharp rise to 28.76% at the end of September 2013
from 23.87 % in December 2012. Gross NPL ratio of private commercial banks (PCBs) witnessed a rise to 7.30%
in September 2013 (Dec 2012: 4.58%). Foreign commercial banks (FCB) asset quality also deteriorated as
gross NPL ratio increased to 6.02% at the end of September 2013 (Dec 2012: 3.53%). However, net NPL ratio of
the Banking Industry was 5.01% at the end of September 2013.
The risk weighted capital asset ratio (RWCAR) for all banks decreased to 9.14 percent at the end of September
2013 from 10.46 percent at the end of December 2012 due partly to increase in NPLs. However at the end of
September 2013, RWCAR (under Basel II) of PCBs was 11.56%, FCBs was 20.25% and SCBs was 1.32%.
Provision maintenance ratio at the end of September 2013 for PCBs was 97.19%, FCBs was 75.21% and SCBs
was 96.89%. Sluggish profitability in the banking sector also continued in 2013 due to lower income from
investment as well as increase in non performing loans. At the end of 2013, return on assets (ROA) of the FCBs
was 3.44% 3.27% (2012: 3.27%) and PCBs was 0.44% (2012: 0.92%).
Overall asset quality of the banking sector weakened in 2013. However, banks appear to be quite resilient to
various kinds of market risks and shocks such as change in interest or exchange rates. The Bangladesh Bank
(BB) is taking proactive steps to maintain stability.

INDUSTRY OUTLOOK2
Evidence is emerging that the global economy is slowly recovering, albeit with hesitancy and unevenness.
Growth in developing countries projected to gain strength. Bangladesh's near and medium-term
macroeconomic outlook hinges primarily on internal stability and policy reforms. Real GDP growth in FY14 may
slow reflecting the negative impact of the recent strikes and slower growth of foreign investment. Looking
ahead, the FY14 inflation target announced in the Budget is 7.0%. Reducing average inflation from its current
7.5% level may prove challenging especially as aggregate demand is likely to pick up in 2014 and the recent
rise in Indian inflation is also a risk for Bangladesh as shown by historical long term trends.
The monetary stance in the second half of FY14 will target a monetary growth path which aims to bring average
inflation down to 7%, while ensuring that credit growth is sufficient to stimulate inclusive economic growth. BB
will use both monetary and financial sector policy instruments to achieve these goals. The space for private
sector credit growth of 16.5% has been kept well in line with output growth targets and is sufficient to
accommodate any substantial rise in investment over the next six months. Bangladesh Bank will continue to
encourage larger borrowers to access the capital market as banks will need to comply with the recently revised
regulation on single borrower exposure limits for business groups.

References:
1. Bangladesh Bank Publications.
2. Quarterly Economic Update by ADB.
3. Bangladesh Economic Update by World Bank- October 2012.

2 Source: Please see annexure