Banks need to lower lending rates further
Tuesday, 11 March 2008
IT is the general view of most concerned persons that the high cost of servicing borrowed funds is posing as one of the major obstacles to entrepreneurship in Bangladesh. A good number of entrepreneurs in Bangladesh hold the view that they find the lending rates charged on the credits they take from banks as unserviceable. Such rates vary between 13 and 15 per cent but could be as high as 22 per cent due to the compound manner of interest calculation. After paying out such high rates of interests on bank credits and enduring or absorbing other powerful negatives, many enterprises here do not see any profit and some of them soon join the sick category and even close down at one stage.
Thus, the entrepreneurs in Bangladesh have been pleading for a 'substantial' reduction of lending rates of banks. The commercial banks have very recently decided to reduce the lending rate on loans by one per cent only after much persuasion by the Bangladesh Bank. But this reduction is a nominal one and is unlikely to create much of any positive impact, as far as investment and other economic activities that are made or carried out with credit supports of the banks, are concerned.
The lending rate needs to go down further for the desired outcome. This should be done without lowering down the deposit rate, particularly under the present high inflationary pressure in the economy. Any cut in deposit rate now will lead to a negative effective deposit rate and will erode the value of deposits, in real terms, that are kept with the banks. We believe that the banks can still maintain their profitable operations by lowering the lending rate without any cut in deposit rate through sustained efforts to reduce the current high spread between the two.
Asif Ahmed
Gulshan
Dhaka
Thus, the entrepreneurs in Bangladesh have been pleading for a 'substantial' reduction of lending rates of banks. The commercial banks have very recently decided to reduce the lending rate on loans by one per cent only after much persuasion by the Bangladesh Bank. But this reduction is a nominal one and is unlikely to create much of any positive impact, as far as investment and other economic activities that are made or carried out with credit supports of the banks, are concerned.
The lending rate needs to go down further for the desired outcome. This should be done without lowering down the deposit rate, particularly under the present high inflationary pressure in the economy. Any cut in deposit rate now will lead to a negative effective deposit rate and will erode the value of deposits, in real terms, that are kept with the banks. We believe that the banks can still maintain their profitable operations by lowering the lending rate without any cut in deposit rate through sustained efforts to reduce the current high spread between the two.
Asif Ahmed
Gulshan
Dhaka