Banks asked to fix lending rates at 12pc on import of 10 essential items
Wednesday, 15 August 2007
Siddique Islam
The Bangladesh Bank (BB) has instructed the commercial banks to fix the lending rates at a maximum of 12 per cent on import financing for 10 essential commodities to help curb the price hike of the essentials in the local markets.
Bankers said they will carry out the instruction, but it will have a pressure on their profitability.
The central bank took the measure against the backdrop of a rising trend of the prices of daily essentials, caused by the current floods and the price hike of commodities in the international markets.
"We have taken the measure temporally to help arrest the prices of the essentials in the local market," Executive Director of the BB Murshid Kuli Khan told the FE Tuesday.
He also said the central bank is hopeful about the consumers getting the benefit of the measure.
Sources, however, said the authorities concerned should strengthen monitoring and supervision operations in the market so that consumers can get benefits from such move.
The BB's measure is expected to help bring down the cost of doing business, particularly that of the essential items, by around 4.0 per cent, the sources added.
Currently, the banks charge lending rates on trade financing in the range between 12 per cent and 16.50 per cent while export credit is offered at seven per cent.
The essentials are: rice, wheat, sugar, edible oil, gram, motor, pulses, onion, spices and date.
The central bank issued a circular in this connection Tuesday and asked the chief executives of all scheduled banks to maintain the interest rates on such essentials for import financing.
Under the Financial Sector Reforms Programme, the banks are free to charge/fix their deposit and lending rates other than export credit. Loans at reduced rates (7.0 per cent) have been provided for all sorts of export credit since January 2004, according to interest rate policy of the central bank.
Currently, banks can differentiate interest rate up to 3.0 per cent considering comparative risk elements involved among borrowers in the same lending category.
"With progressive deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any) for different sectors and the banks may change interest at 1.5 per cent more or less than the announced mid-rate on the basis of the comparative credit risk," the BB said in its interest rate policy, which was published in its annual report for 2005-06.
The central bank has taken the latest measure to curb inflationary pressures on economy ahead of the holy month of Ramadan and also in the context of flood-related damage and dislocations, sources in the central bank said.
"We will implement the BB's instruction relating to interest rates on import financing in the national interest, but our profitability will come under pressures," Managing Director of the National Credit and Commerce Bank Limited Nurul Amin told the FE.
Meanwhile, the overall trend of opening of letters of credit (LCs) against imports increased by 15.01 per cent during the first nine days of August'07 against the first 10-day of the same month of the previous year, official sources said.
The opening of import LCs of most essential items, including rice, wheat, sugar, milk food, edible oils, pulses and onion, rose scientifically during the period.
The import LCs worth US$ 619.06 million were opened during the period as against $538.25 million of the corresponding period of the last year, the central bank data showed.
According to the BB's statistics, the opening of LCs for rice increased by $40.94 million in terms of value, wheat by $18.02 million, sugar by $10.52million, milk food by $5.14 million, edible oil by $19.33 million, pulses by $5.33 and onion by $0.80 million.
On March 12 last, the central bank directed the banks to promote businesses, particularly small and medium ones, for opening fresh LCs against imports to ensure sufficient supply of commodities in the markets.
The BB also asked the banks to remain flexible while opening fresh LCs for import of essential commodities.
The Bangladesh Bank (BB) has instructed the commercial banks to fix the lending rates at a maximum of 12 per cent on import financing for 10 essential commodities to help curb the price hike of the essentials in the local markets.
Bankers said they will carry out the instruction, but it will have a pressure on their profitability.
The central bank took the measure against the backdrop of a rising trend of the prices of daily essentials, caused by the current floods and the price hike of commodities in the international markets.
"We have taken the measure temporally to help arrest the prices of the essentials in the local market," Executive Director of the BB Murshid Kuli Khan told the FE Tuesday.
He also said the central bank is hopeful about the consumers getting the benefit of the measure.
Sources, however, said the authorities concerned should strengthen monitoring and supervision operations in the market so that consumers can get benefits from such move.
The BB's measure is expected to help bring down the cost of doing business, particularly that of the essential items, by around 4.0 per cent, the sources added.
Currently, the banks charge lending rates on trade financing in the range between 12 per cent and 16.50 per cent while export credit is offered at seven per cent.
The essentials are: rice, wheat, sugar, edible oil, gram, motor, pulses, onion, spices and date.
The central bank issued a circular in this connection Tuesday and asked the chief executives of all scheduled banks to maintain the interest rates on such essentials for import financing.
Under the Financial Sector Reforms Programme, the banks are free to charge/fix their deposit and lending rates other than export credit. Loans at reduced rates (7.0 per cent) have been provided for all sorts of export credit since January 2004, according to interest rate policy of the central bank.
Currently, banks can differentiate interest rate up to 3.0 per cent considering comparative risk elements involved among borrowers in the same lending category.
"With progressive deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any) for different sectors and the banks may change interest at 1.5 per cent more or less than the announced mid-rate on the basis of the comparative credit risk," the BB said in its interest rate policy, which was published in its annual report for 2005-06.
The central bank has taken the latest measure to curb inflationary pressures on economy ahead of the holy month of Ramadan and also in the context of flood-related damage and dislocations, sources in the central bank said.
"We will implement the BB's instruction relating to interest rates on import financing in the national interest, but our profitability will come under pressures," Managing Director of the National Credit and Commerce Bank Limited Nurul Amin told the FE.
Meanwhile, the overall trend of opening of letters of credit (LCs) against imports increased by 15.01 per cent during the first nine days of August'07 against the first 10-day of the same month of the previous year, official sources said.
The opening of import LCs of most essential items, including rice, wheat, sugar, milk food, edible oils, pulses and onion, rose scientifically during the period.
The import LCs worth US$ 619.06 million were opened during the period as against $538.25 million of the corresponding period of the last year, the central bank data showed.
According to the BB's statistics, the opening of LCs for rice increased by $40.94 million in terms of value, wheat by $18.02 million, sugar by $10.52million, milk food by $5.14 million, edible oil by $19.33 million, pulses by $5.33 and onion by $0.80 million.
On March 12 last, the central bank directed the banks to promote businesses, particularly small and medium ones, for opening fresh LCs against imports to ensure sufficient supply of commodities in the markets.
The BB also asked the banks to remain flexible while opening fresh LCs for import of essential commodities.