Single digit interest rate

Most banks renege on promises despite availing benefits

Politically connected manage to get favour

Siddique Islam | Wednesday, 12 September 2018

The majority of the banks have not brought down the lending rate to single digits despite availing both policy and fiscal supports offered by the government.
More than three dozen banks did not re-fix their rates on lending at 9.0 per cent.
Four banks offered more than 6.0 per cent interest rate on three-month term deposits, according to the central bank's monitoring reports on lending and deposits rates for July 2018.
However, only seven private commercial banks, mostly Shariah-based Islamic lenders, implemented the decisions of the Bangladesh Association of Banks (BAB) by cutting both lending and deposit rates.
Twelve more banks including foreign lenders have brought down the lending rate to the single-digits, particularly for term loans and working capital.
Earlier on June 20, the BAB decided to cut back on the interest rates on both lending and deposit at 9.0 per cent and 6.0 per cent respectively from July 01.
The number of banks, which brought down the lending rates at single digits, particularly for the productive sector may go up in August 2018, a senior official of the Bangladesh Bank (BB) told the FE.
"We're now preparing the reports on both lending and deposits rates for August 2018," the central banker said.
Meanwhile, influential large borrowers have already taken the advantage from the BAB's decisions by securing loans at 9.0 per cent, according to the banking sector insiders.
But small borrowers have not yet benefited from the much-talked about BAB move, they said.
"Big borrowers, especially 'politically exposed persons', are now taking the maximum benefits from slashing lending rates by using their influences to the top management of the banks," a senior executive of a leading private bank told the FE preferring anonymity.
The central bank had earlier instructed the banks and non-banking financial institutions (NBFIs) to be more careful while opening and maintaining the accounts of the politically-connected people.
Also, good borrowers are now able to get loans at 9.0 per cent through bargaining with the banks, he said.
"The banks are bound at a stage to re-fix the lending rate at 9.0 per cent to continue business with good borrowers," the private banker said, mentioning the names of more than corporate entities.
He also said the banks are now following the BB's policy for the selection of good borrowers.
The central bank had issued a policy for good borrowers to establish a sound credit culture in the country's banking sector.
Under the existing policy, a borrower will be considered good if his or her loan accounts -- continuous, demand and term -- prove to be "unclassified" for three consecutive years.
Talking to the FE, Abul Kasem Khan, president of the Dhaka Chamber of Commerce and Industry (DCCI), said the banks should take effective measures to slash their lending rates to single-digits as they availed different policy supports from the government and the central bank.
The government and the central bank of Bangladesh provided different policy supports to the banks, particularly the private lenders nearly five months ago.
The benefits include lowering of corporate tax, slashing of repo rate and reduction in cash reserve requirement (CRR) as the banking regulator moved to decrease the lending rate and ease the liquidity crunch in the banking system.
The private banks were also allowed to receive 50 per cent deposits of state entities, up from the previous ceiling of 25 per cent.
"We want single digit lending rate for reducing the cost of doing business in Bangladesh," the DCCI chief said, adding that it would help improve productivity too.
Mr. Khan urged the central bank to play an effective role in bringing down the lending rate to single-digits to facilitate the overall business activities across the country.
"The central bank should strengthen monitoring and supervision for the implementation of the single-digit lending rate," the DCCI president noted.
When contacted, a BB senior official said the central bank has already expedited monitoring and supervision to assess the overall interest rates on both lending and deposits in the banking sector.
"We're monitoring the interest rate closely," the central banker said without giving further details.
Talking to the FE, AKM Nurul Fazal Bulbul, member-secretary of BAB Research and Training Centre, said: "We're still trying to implement our decisions on slashing the interest rates," he said.
"But some banks are unable to do this right now," Mr. Bulbul said without elaborating.
Currently, the banks lend out to large and medium industries at interest rates ranging from 6.0 per cent to 18 per cent and to small industries between 8.0 per cent and 20 per cent.
The bank's lending rates on working capital to large and medium-scale industries vary between 5.75 per cent and 17 per cent, according to the report on scheduled banks' interest rates for July.
The interest rates on working capital for small industries range from 6.60 per cent and 18.50 per cent and trade financing loans at 6.75 per cent and 17 per cent.
Interest rates on housing loans hover at 8.0 per cent and 18 per cent and consumer credits at between 8.50 per cent and 20 per cent, said the central bank's latest monitoring report.
Meanwhile, the banks are now offering variable rates of interest on fixed deposit schemes, particularly for three-month, six-month and one-year, ranging from 1.50 per cent and 11 per cent, it added.
The banks have offered interest rates on savings accounts ranging between 0.40 per cent and 8.75 per cent to attract more funds from general depositors.