Interest rates on loans and deposit
Tuesday, 2 June 2009
Mahbubul Haque Chowdhury
INTEREST rate is a component of the cost of fund which an individual or institution charges for parting with the fund for a temporary period. An individual or institution faces discomfort and keep or lend the fund for savings purpose or for earning profit. There are moneylenders, or banking, or non-banking institutions who deal in accepting deposit and giving loans on certain rates of interest for a certain period. The depositor always prefers good rate of interest and safe return of fund after the terms of period expire.
Interest is the main source of income of banking and non-banking institutions. So the banker always tries to give lowest rate of interest to the depositor. Again the bankers always try to charge higher rate of interest to pay the depositors as well as to meet the operating costs out of the income so invested and lent out to the loanees. It is found that the rate of interest is very high in Bangladesh. Despite many persuasions, the rate of interest could not be brought down to a single digit. Usually, under the dispensation of a free market economy, the rate of interest is determined by the demand for, and supply of, market forces. But our bankers determine the cost of fund keeping a wide scope for profit. The lower rate of interest is available to the loanees only when the government and the central bank spell out the sections which are urgently necessary for the economy and the welfare of the country. As a result, a uniform rate of interest is not available in the country. Not only that, interest is applied on a quarterly, half-yearly and annual basis. So, the interest is compounded, which makes the loanee absolutely unable to repay the interest. The bankers do charge higher rate of interest, very often get back the loan with applied interest. Bankers also charge higher rate of interest to keep the bank on a viable footing, keeping huge amounts of non-productive loans in consideration.
The businessmen and different chambers people are clamouring for reduction in the rate of interest as part of the bailout plan. Reduction in the rate of interest should not be considered as a single ingredient to fight world recession, which has not seriously affected us as yet. But the businessmen and traders are pressing the government to force out maximum benefit including cash. The businessmen are talking about fresh loan with lower rate of interest, if possible at zero rate.
There is a huge amount of money lying as non-performing assets. But all the machinery including central bank is keeping mum as to how that money will be recovered. The present fund which is going to be kept on a moratorium basis will surely be added to non-performing loans (NPLs) putting the banks in a more vulnerable situation. How will the businessmen generate further income when the foreign demand is declining?
It has not been calculated as to how many employees in our factories have lost their jobs due to world recession. Our stimulus programme should be extended to those factories which have really lost their foreign demand and sustained losses here in Bangladesh. The businessmen always cry for maximum benefit, but their repayment behaviour is not appreciable. Because it is certain that this group of people will make demand for waiver of interest on the plea of various local and international constraints. So it does not matter whether the rate of interest is high or low.
(The writer is a former General Manager of Agrani Bank and Sonali Bank)
INTEREST rate is a component of the cost of fund which an individual or institution charges for parting with the fund for a temporary period. An individual or institution faces discomfort and keep or lend the fund for savings purpose or for earning profit. There are moneylenders, or banking, or non-banking institutions who deal in accepting deposit and giving loans on certain rates of interest for a certain period. The depositor always prefers good rate of interest and safe return of fund after the terms of period expire.
Interest is the main source of income of banking and non-banking institutions. So the banker always tries to give lowest rate of interest to the depositor. Again the bankers always try to charge higher rate of interest to pay the depositors as well as to meet the operating costs out of the income so invested and lent out to the loanees. It is found that the rate of interest is very high in Bangladesh. Despite many persuasions, the rate of interest could not be brought down to a single digit. Usually, under the dispensation of a free market economy, the rate of interest is determined by the demand for, and supply of, market forces. But our bankers determine the cost of fund keeping a wide scope for profit. The lower rate of interest is available to the loanees only when the government and the central bank spell out the sections which are urgently necessary for the economy and the welfare of the country. As a result, a uniform rate of interest is not available in the country. Not only that, interest is applied on a quarterly, half-yearly and annual basis. So, the interest is compounded, which makes the loanee absolutely unable to repay the interest. The bankers do charge higher rate of interest, very often get back the loan with applied interest. Bankers also charge higher rate of interest to keep the bank on a viable footing, keeping huge amounts of non-productive loans in consideration.
The businessmen and different chambers people are clamouring for reduction in the rate of interest as part of the bailout plan. Reduction in the rate of interest should not be considered as a single ingredient to fight world recession, which has not seriously affected us as yet. But the businessmen and traders are pressing the government to force out maximum benefit including cash. The businessmen are talking about fresh loan with lower rate of interest, if possible at zero rate.
There is a huge amount of money lying as non-performing assets. But all the machinery including central bank is keeping mum as to how that money will be recovered. The present fund which is going to be kept on a moratorium basis will surely be added to non-performing loans (NPLs) putting the banks in a more vulnerable situation. How will the businessmen generate further income when the foreign demand is declining?
It has not been calculated as to how many employees in our factories have lost their jobs due to world recession. Our stimulus programme should be extended to those factories which have really lost their foreign demand and sustained losses here in Bangladesh. The businessmen always cry for maximum benefit, but their repayment behaviour is not appreciable. Because it is certain that this group of people will make demand for waiver of interest on the plea of various local and international constraints. So it does not matter whether the rate of interest is high or low.
(The writer is a former General Manager of Agrani Bank and Sonali Bank)