Cut in interest rates on deposit in the offing

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FE Report
Reduction of interest rates on deposit is in the offing as the finance minister has supported such a move by commercial banks following their recent decision on cut in lending rates.
On Tuesday, commercial banks operating in the country agreed to a central bank's proposal to charge interest not more than 13 per cent on their lending for some specific sectors against the backdrop of the ongoing global financial meltdown.
"Since the rates of interest on deposit and lending are correlated, the lending rate cut will necessitate banks to reduce their interest rate on deposit," Mr Muhith told newsmen after a meeting with members of the Association of Bankers Bangladesh (ABB), led by its chairman Kazi Mahmood Sattar, at the secretariat.
Banks need to have some profit margins, the finance minister said, adding, "There should be a limit in the spread between their deposit and lending rates.
He observed that the banks' decision on reduction of lending rate would be 'helpful' for the country's industrial sectors against the backdrop of the ongoing global economic recession.
The minister, however, laid emphasis on precautionary measures so that the local industries do not become sick due to the fallout of the global financial meltdown.
He reiterated the government's willingness to relax the exiting rules and regulations on rescheduling of classified loans in order to help protect the local industries from any possible adversities of the global recession.
Responding to a question, Mr Muhith said, "If the local industries become sick, their lenders - banks - will be affected also."
When asked, the finance minister also said the proposed stimulus package for the meltdown-hit local export sectors is expected to be announced within a week.
Talking to the newsmen, the ABB chairmen Kazi Mahmood Sattar said the banks will have to cut interest rate on deposits in line with their reduction of lending rates.
"We can't sell funds below our buying rates," Mr Mahmood Sattar said.
The ABB leader also said: "Even after the reduction of deposit rate, we will be able to maintain a spread of 5.0 per cent, as has been stipulated by the central bank."
He also informed the media that the association had discussed various fiscal issues including some of problems in the banking systems and the impact of global recession with the finance minister.
"We have sought the finance minister's intervention in addressing the existing disparity in the fixation of corporate tax on banks," he said, adding that though the rate of tax has been fixed at 40 per cent the effective rate is actually 45 per cent.
Responding to a query, the ABB chairman admitted that there was a possibility of outflow of funds from banks to other unproductive sectors, including stock market after the reduction of deposit rates.