Pushing down the exorbitant interest rates
Wednesday, 28 April 2010
Mahbubur Rahman
There are some basic hurdles to investment noted in Bangladesh. The lack energy insufficiency is one of them. Non-availability of proper infrastructures is cited to be another stumbling block. But there is still one factor with a longer history which has been proving to a major disincentive to investment. This is the relatively higher costs of borrowing that entrepreneurs have to absorb that discourage them in many cases or adversely affect their performance. Experts maintain that notwithstanding other factors that discourage investment, the pushing down of the banks' interest rates on borrowing reasonably, can prove to be the greatest single stimulator in the resumption of investment operations in the country.
The average interests rates are still not below 14 per cent that make it difficult for many entrepreneurs to run their enterprises viably. On the one hand the high interest rates, higher even by regional standards, help the creation of classified loans for banks and on the other add to banks' excess liquidity from reluctance of borrowers to contract the loans at such higher interest rates. Thus, the entire economy as a whole is seen to be getting negatively impacted from these developments. Economic growth involving accelerated entrepreneurship by entrepreneurs is not occurring at the desired rate. This state of affairs is only helping to worsen unemployment and keep poverty level undiminished. The banks themselves are becoming vulnerable to shocks from allowing their excess liquidity to grow from borrowers' lack of enthusiasm in taking bank loans and from existing loans remaining non performing in many cases.
A recent media report focused that between 2006-7, the banks' management seemed somewhat agreeable to Bangladesh Bank's directive and pushed down interests albeit marginally. But no further progress in this area was seen after this period. But the management of the banks can prune unnecessary operational costs and settle for less than super normal profits.
Taking of such steps will not boost unusually the profit levels of the banks but would keep them operating viably with good servicing of their loans. More significantly, the economy as a whole would be well served in the process and this objective should be also in the longer term interests of the banks. On its part, Bangladesh Bank authorities should realize that they need to practice more practical measures in this direction other than only ethically urging the banks.
There are some basic hurdles to investment noted in Bangladesh. The lack energy insufficiency is one of them. Non-availability of proper infrastructures is cited to be another stumbling block. But there is still one factor with a longer history which has been proving to a major disincentive to investment. This is the relatively higher costs of borrowing that entrepreneurs have to absorb that discourage them in many cases or adversely affect their performance. Experts maintain that notwithstanding other factors that discourage investment, the pushing down of the banks' interest rates on borrowing reasonably, can prove to be the greatest single stimulator in the resumption of investment operations in the country.
The average interests rates are still not below 14 per cent that make it difficult for many entrepreneurs to run their enterprises viably. On the one hand the high interest rates, higher even by regional standards, help the creation of classified loans for banks and on the other add to banks' excess liquidity from reluctance of borrowers to contract the loans at such higher interest rates. Thus, the entire economy as a whole is seen to be getting negatively impacted from these developments. Economic growth involving accelerated entrepreneurship by entrepreneurs is not occurring at the desired rate. This state of affairs is only helping to worsen unemployment and keep poverty level undiminished. The banks themselves are becoming vulnerable to shocks from allowing their excess liquidity to grow from borrowers' lack of enthusiasm in taking bank loans and from existing loans remaining non performing in many cases.
A recent media report focused that between 2006-7, the banks' management seemed somewhat agreeable to Bangladesh Bank's directive and pushed down interests albeit marginally. But no further progress in this area was seen after this period. But the management of the banks can prune unnecessary operational costs and settle for less than super normal profits.
Taking of such steps will not boost unusually the profit levels of the banks but would keep them operating viably with good servicing of their loans. More significantly, the economy as a whole would be well served in the process and this objective should be also in the longer term interests of the banks. On its part, Bangladesh Bank authorities should realize that they need to practice more practical measures in this direction other than only ethically urging the banks.