Bangladesh Association of Banks (BAB) has decided to bring down the interest rates on both lending and deposit to 9.0 per cent and 6.0 per cent respectively from July 01.
The decision was taken at an emergency meeting, held at its office in Dhaka on Wednesday, with its chairman Nazrul Islam Mazumder in the chair.
Finance Minister AMA Muhith also instructed the public banks on the day not to increase deposit rate and keep the lending rate within single digit.
"We've decided to lend at 9.0 per cent and will not take deposits at rates more than 6.0 per cent from July 1," Mr. Mazumder told the FE after the meeting.
Senior economists and experts strongly opposed the BAB's latest moves, saying that the fixation of interest rates is beyond the jurisdiction of the association.
"The BAB is acting like a cartel coming into conflict with market forces," Prof. M.A. Taslim told the FE while giving his instant reactions on the issue.
Those who can slash rates of interest can also do the same inversely, Dr. Taslim added.
"This is not a good example for the country's banking system as the interest rates should be determined by the market forces," former BB governor Salehuddin Ahmed told the FE.
Ensuring good governance and improving efficiency level may help the banks reduce their interest rates on lending, the former BB governor explained.
The proposed interest rate on deposit will be applicable in the case of deposits having three-month maturity.
The interest rates on other term-deposits for six months and one year will not come under such jurisdiction.
However, the BAB chairman did not specify the sectors where the single-digit lending rate will be applicable.
In the opening speech, Mr. Mazumder urged the BAB members to take decisions with regards to bringing down the lending rates to the single digit level to facilitate business activities.
"Business activities cannot be viable paying interest rate ranging between 12 per cent and 14 per cent," the BAB chief noted.
BAB members, however, raised questions about the yield rates offered to savings instruments, interest rate spread and implementation of the decisions.
The BAB chief assured the members that all issues would be addressed one after another.
Among others, A. Rouf Chowdhury, chairman of Bank Asia Limited, Ziauddin Ahmed, director of Union Bank Limited and Nizam Chowdhury, chairman of NRB Global Bank Limited took part in the discussion.
The finance minister in its meeting with top executives of public banks asked them not to enhance deposit rates.
"I did invite them (executives of the state-owned banks) to discuss the issue. And I told them not to offer higher rates on deposits" Mr. Muhith told newsmen after holding a meeting with managing directors (MDs) of state-owned banks.
He further said: "I do not want to give any figure. But it (deposit) is not anything to make profit from."
About the lending rate, the finance minister said he also advised the state banks to follow announcement made by the Prime Minister (PM) Sheikh Hasina to this effect.
"The PM has already made an announcement that the lending rate should be kept at such a level so that investment is not harmed," Mr Muhith said.
He went on: "I have just conveyed the PM's message to the state-owned banks at today's meeting."
When his attention was drawn to possible impact of the government's move, the finance minister said the lending rate would come down because of it.
"If not to single digit, the lending rate should be around 10," Mr. Muhith added.
The central bank governor, who also attended the meeting, told media men that single digit lending rate for the public sector banks would come into force from July 1, 2018, as instructed by the finance minister during the meeting.
When his attention was drawn, the governor said the central bank will make its observation to this effect in the next monetary policy statement.
In the proposed budget for next fiscal year, corporate tax for banks and non-banking financial institutions was reduced by 2.5 percentage points.
The benefit was given to reduce the lending rate to a single digit, Finance Minister AMA Muhith said while speaking at the post-budget press conference held in Dhaka on June 8.
Earlier on April 16, the central bank asked the banks to take effective measures to bring down the interest rate on lending to a single digit as soon as possible.
Meanwhile, the interest rate spread in the banking sector increased slightly in April due to rise in interest rate on lending more than that of deposit, officials said.
The weighted average spread between lending and deposit rates rose to 4.46 per cent in April 2018 from 4.4 per cent in the previous month, according to the central bank's latest statistics.
It was 4.72 per cent in January 2017.
The weighted average rates on deposits rose to 5.43 per cent in April last from 5.30 per cent in the previous month while interest on lending stood at 9.89 per cent against 9.7 per cent.
Currently, the banks provide loans to large and medium scale industries at interest rates ranging between 8.25 per cent and 18.00 per cent and to small industries between 9.0 per cent and 18.00 per cent.
Interest rates on housing loans range between 9.00 per cent and 18.00 per cent and consumer credits 10.00 per cent and 19.00 per cent, according to the central bank's latest monitoring report.
The banks’ lending rates on working capital to large and medium scale industries vary between 8.50 per cent and 17.00 per cent, the report on scheduled banks’ interest rates for April said.
The interest rates on working capital for small industries range between 9.50 per cent and 17.00 per cent and trade financing loans 9.0 per cent and 17 per cent.
On the other hand, the banks are now offering variable rates of interest on fixed deposit schemes particularly for three-month, six-month and one-year, ranging between 2.00 per cent and 11.00 per cent, it added.
The banks have offered interest rates on savings accounts ranging between 0.40 per cent and 8.00 per cent to attract more funds from the general depositors.
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