Dhaka, Bangladesh
Banks bring down lending rate to single digit

Banks bring down lending rate to single digit

Business Desk As Prime Minister Sheikh Hasina pitched for lowering the interest rates to single-digit to prop up domestic investment, country’s scheduled banks have started working to adjust loan interest with clients after cutting the lending rate to a single digit. “As per the decision of Bangladesh Association of Banks (BAB), each bank is bringing down their interest rate to a single digit. Banks are implementing this decision,” Chairman of the association Syed Mahbubur Rahman said. BAB, an association of private commercial banks, at a recent meeting decided to bring down the lending rate to a single digit and deposit rate for the three months tenure to six percent from July 1, the first day of fiscal 2018-19. Mahbubur Rahman, also managing director of Dhaka Bank Limited, said his bank is working on lowering the lending rate. “We will also bring down the variable interest rate of existing loans as soon as possible,” he added. He said the single digit interest rate against bank lending will surge in private sector investment that will help take the country’s economic growth at a sustainable level. Chairman of Mercantile Bank Limited (MBL) AKM Shaheed Reza said the MBL board of directors has already taken initiatives to implement the BAB’s decision. “MBL is working to lower the interest rate. The variable interest rate of the existing loans will also come down to a single digit,” he added. He said the single digit interest rate will boost up further the country’s economy, which will help achieve the country’s development goals, including Vision-2021 and Vision-2041. Bangladesh Bank Deputy Governor Abu Hena Mohd Razee Hassan said BB is continuing its ethical pressure on banks to bring down the lending rate to a single digit for accelerating the country’s economy. “This is the own decision of individual banks. BB monitors the interest rate only as per the rules and regulations,” he added. Recently, BB has re-fixed the CRR at 5.5 percent for commercial banks on bi-weekly average basis from 6.5 percent. To tackle the liquidity crisis in the sector, the government has also taken a decision to allow state agencies to deposit 50 percent of their funds rather than 25 percent in private banks. The government has also reduced the corporate tax rate for banks and financial institutions (FIs) by 2.5 percent in the budget for fiscal 2018-19. Last month, BAB said they took the decision on the rates in a meeting. “We’ve had a long meeting and fixed the rates of lending and deposit interest rates,” BAB Chairman Nazrul Islam Majumder said at a news conference. According to him, the maximum rate of interest for bank deposit will be 6 percent. The decisions would be effective from July 1, he said and added that the banks violating the ceilings would be punished. Majumder, the chairman of Exim Bank, said the decisions aimed to prop up Bangladesh’s economy and development following Sheikh Hasina’s instructions. He also said Islami Bank, Social Islami Bank, Union bank, First Security Islami Bank and Al-Arafah Islami Bank have already said they were lowering the lending rate to single digits from next month. “Then why can’t the others do it?” he asked. NRB Global Bank Chairman Nizam Chowdhury, former chairman and incumbent Director of South-East Bank Azim Uddin Ahmed, and NRB Commercial Bank Chairman Tamal SM Parvez were present at the media call. Hasina told the private bank owners to cut the interest rate on bank loans in a meeting in April. The Bangladesh Bank also asked the banks in May to bring down the ‘spread’ – the difference between interests on loans and deposits – to 4 percentage points by decreasing the lending rates. According to latest central bank data, the private commercial banks are charging 12 to 15 percent interests on loans while collecting deposits at interest rates between 8 and 11 percent. Around a month after speaking about the issue at a party programme, the Awami League chief and Prime Minister Sheikh Hasina raised it again at a meeting with private bank owners at the Ganabhaban in April. “You must cut interest rates a bit. Otherwise, investments will be impossible to come by. So you must make the rates single-digit,” she said. Leaders of the Bangladesh Association of Banks called on Hasina to hand Tk 1.63 billion in aid to the Prime Minister’s Relief and Welfare Fund. Despite repeated calls by the government and the central bank to cut the interest rates, the commercial banks have reportedly raised the rates. The banks say they have received no instructions from the Bangladesh Bank. The association representatives agreed they should cut the rates in recent meetings with Finance Minister AMA Muhith, Bangladesh Bank Governor Fazle Kabir and other policymakers, but have not done so. Hasina said her government has resolved ‘all problems raised by the bank owners’. “Now you must keep your words,” she told them. The banks stand to gain as well if they cut interest rates to single-digit, the prime minister said. “People will be eager to work with the banks,” she said. Muhith announced relaxing cash reserve requirement or CRR along with a cut in repo interest rate in a meeting with the BAB. Kabir’s presence at the meeting between Muhith and the bank owners drew criticism from a section of financial experts as former deputy governor of Bangladesh Bank Khondkar Ibrahim Khaled suggested the incumbent governor should not have been there with the finance minister. Reacting to the criticism, BAB President Nazrul Islam Majumder said in the Ganabhaban meeting, “Why shouldn’t the governor be there? He is our leader.” Majumder also identified Khaled as “a person continuously speaking against us (private bankers).” Hasina, however, asked the bank owners to work for the socio-economic development without paying heed to criticism. She thanked them for their contribution to the relief fund and distributed money among the families of the victims of the Aug 21 grenade attack of 2004. But, the troubled Farmers Bank could not contribute to the PM’s relief fund on Friday. BAB chief Majumder introduced new Farmers Bank Chairman Chowdhury Nafeez Sarafat to Hasina. Majumder said the bank was doing well and had recovered Tk 2.67 billion loans after Sharafat took charge. (Input taken from BSS)

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