Reduction of interest rates on loans

Businessmen of the country have for long been requesting the regulatory authority, the Bangladesh Bank, to cut down the lending and deposit rates of banks to single digit. According to them, the interest rates are higher than that of foreign banks, a factor that is creating bottlenecks, leading to less growth of investment in the country. The BB is supposed to issue prudential guidelines to execute proposed rates cut.

However, under the prevailing situation, lowering the rates to single digit may be quite difficult to implement. Due to liquidity shortfall and lack of available funds for investment, some banks are giving higher interest rates for deposits and are asking for higher interest rates for lending. However, these banks are not getting deposit as was expected even after raising their interest on deposits. If the Bangladesh Bank forces banks to cut rates, the profitability of these banks may be affected. It remains to be seen how viable the step of cutting interest rates can be for the banking sector of the country.

Mohammad Zonaed Emran

A banker based in Dhaka.

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