BB warns banks against charging high interest rate

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Bangladesh Bank Sunday warned certain commercial banks of confusing borrowers claiming higher interest rate for productive sector (SME) loan, reports UNB.
Explaining, an official said the banks are pushing the SME loan to consumer loan and thus charging higher interest.
The central bank has also asked the banks of strictly complying with BASEL-II accord, including capital adequacy, by January 2010 or face tough regulatory action.
Bangladesh Bank Governor Dr Atiur Rahman rang the alarm bell at a meeting with managing directors and chief executive officers of commercial banks, officially known as bankers' meeting, at Bangladesh Bank.
Deputy Governor Nazrul Huda told a post-meeting press briefing that the banks are creating confusion among the SME borrowers by charging higher interest rates categorizing their loan as consumer borrowing.
He said the meeting also asked the banks to augment SME loans to help achieve GDP target for the current fiscal year, as SME loans still unsatisfactory in the country at 21 percent of the total bank loans. SME loans grew by only 2 percent during last two years.
"If the share of total bank loans can be raised to 50 percent, the appearance of the country will be changed," he said, urging banks to utilize the Bangladesh Bank refinance facility, particularly for the women entrepreneurs.
Nazrul Huda said most of the country's commercial banks still far from adequate capital, risking their business expansion like regulatory restriction in opening new branches, exchange houses and getting authorized dealer licenses.
Out of the total 48 commercial banks operating in the country, he said all the nine foreign commercial banks operating in the country are in a better position to comply with the BASEL-II accord while all the state-owned banks are far behind the compliance and all but Krishi Bank of the specialized
banks are unlikely to comply with the accord.
The BASEL-II accord is to strengthen the banks' financial health and mitigating risks to make them more shock absorbent.
Of the 30 private commercial banks, only seven are likely to comply and five are close to the compliance, but the rest 18 would not be able to comply.
"I've no good news for the banks which will remain non-compliant. As a regulator, we'll be compelled to take tough stance," Governor Dr Atiur Rahman was quoted to have told the bankers.
He expected that the commercial banks would undertake an action plan to comply with the accord, including capital adequacy through a "comprehensive capital plan".
Nazrul Huda said the banking sector would have to increase their capital by 2,300 crore to comply with the capital adequacy of Tk 22,000 crore.
He said the meeting also decided to undertake close monitoring activities from its head office and regional offices to achieve the agriculture credit of around Tk 12,000 crore while the commercial banks would also deploy their own monitoring in this regard.
He said the meeting also discussed about Dhaka Inter Bank Offer Rate to reduce distortion in the inter bank money market.