BB governor mounts pressure on banks to cut lending rate

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FE Report
Bangladesh Bank governor Atiur Rahman Sunday mounted pressure on the country's banks and financial institutions to cut lending rate down to single digit in an effort to boost growth and investment.
"The interest rate should go down further," he said, while speaking at the mid-year business conference of the state-owned Janata Bank Limited in the capital.
Lending rates of the country's banks now hover around 12 per cent after a central directive capped the interest rate at around 13 percent in April.
But Atiur said the rates should go down further following a 2.5 percent cut in corporate taxes for the country's 46 banks and 29 non-banking financial institutions in the current budget.
"The government has kept the bankers request and reduced the corporate tax by 2.5 per cent. The interest rate of the banks should reflect that cut. It will be better if it comes down to single digit," he said.
He echoed demands of the local businessmen who have repeatedly urged the government and the banks to bring down lending rate to boost the sagging private sector investment in the country.
The governor said spurring private investment is the key challenge of the central bank, especially in the wake of global recession, which has sapped demand for Bangladeshi goods in the international market.
"We are even ready to use part of our foreign exchange reserve to scale up investment," he said, adding the country's reserve has hit a record US$8.00 billion this week, but the money will bring no good if it is kept idle.
"We will not take up any quasi fiscal measure. The Bangladesh Bank will utilise the fund in innovative ways," he said, allaying concerns that spending from reserve could prove costly.
He said it would create win-win situation for both banks who take loans from external sources at high interest rate and the central bank which will be benefitted by charging four per cent interest.
"We can use the central bank's reserve on an experimental basis," he said, pleading the financial experts not to "misunderstand" the issue.
The governor said the country's private commercial banks should also step up investment in the agriculture sector, which is the main driving force of the economy.
"The revival of the rural economy is going on. The banks should play active role in rebuilding the sector," he said.
The banks should put the emphasis on providing educational grant to students from impoverished areas to help them integrate into the mainstream as part of their corporate social responsibility initiative, he said.
Dr Atiur downplayed the fears that the liquidity scenario in the financial industry is "alarming", as the interest-free reserve now stands at Tk 70 billion only.
"There is no need to be worried. The liquidity will help the country when import goes up as the global economy seems to have started recovering. It will also give the investors some additional confidence."
He said countries like India could not provide loans in the wake of the global recession due to lack of liquidity. "We are in a better position from that point of view."
The central bank is absorbing the excess liquidity through a number of measures such as issuance of bonds, the BB governor added.
Qazi Kholiquzzaman Ahmad, president of Bangladesh Economic Association (BEA), said the banks have to play pivotal role to turn the agriculture sector into the country's main growth lever.
"The banks should not look only at profit. They should spread out and open more branches in rural areas to foster agro-based economic growth," he said.
"We have no choice but to strengthen our agriculture sector. Otherwise, the country's economy will remain wobbly as exports and industry cannot bolster its strength."
He said discriminatory interest rate should not exist in the country.
"Some non-government organisations charge 30 per cent interest from the farmers, especially in areas where there is no branch of the state-owned Krishi Bank whose rate is only 10 per cent."
The BEA chief also urged the banks to cut interest rate and narrow the gap between lending and deposit rates.
Janata Bank's chairman Suhel Ahmed Choudhury and chief executive officer and managing director SM Aminur Rahman also spoke.