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Professor Mustafizur Rahman on banking and savings

Banking business is in a depressing state due to low deposit rate in their saving instruments. At the same time, the government bonds are offering higher rate for the investors. As a result, the general investors are investing their money in the government bonds, he explained.

Published in New Nation on Monday, 19 October 2015.

Poor business forces bank to cut lending rate

Abu Sazzad

The lending rate in the banking sector has been continuously declining in the recent months due to sluggish credit demand.

The traders are reluctant to expand their business paying interest at the existing rate. According to the business people, the bank loan is still high compared with the neighbouring countries. The banking loan rate should be single digit. Already, the business expenditure has become double within the last few years.   The large corporate houses are now enjoying foreign loan facilities at low interest rate, which is more affordable for them. Finding no other alternatives, the scheduled banks should consider to decrease their lending rate for operating their banking business.

Meanwhile, the country’s commercial banks have begun reducing their lending rates for excess liquidity in the money market and for central bank’s move to rationalize the interest rate. At present, the banking sector is holding over Tk1,15,000 crore idle money.

Some banks have already reduced their rates on loans and advances in the recent months, said the Central Bank Executive Director M Mahfuzur Rahman. Bangladesh Bank earlier instructed all banks to reduce their lending rate with a view to creating a business friendly atmosphere in the country. The low rate will help the business people expand their business smoothly, said the Bangladesh Bank (BB) Executive.

The average interest rate on lending in the banking sector declined to 11.67 percentage points in June from 11.82 percentage points in May of 2015, according to the latest BB data. The rate on lending was 11.88 percentage points in April, followed by 11.93 percentage points in March, 12.23 percentage points in February and 12.32 percentage points in January. On the other hand, the average interest rate on deposit of the banks had also decreased to 6.80 percentage points in June from 6.99 percentage points in May of 2015.He said that majority of the banks had recently cut their interest rates both for deposits and lending as they were now facing dull business.

Central Policy Dialogue (CPD) Executive Director Mustafizur Rahman said, the banking business is in a depressing state due to low deposit rate in their saving instruments. At the same time, the government bonds are offering higher rate for the investors. As a result, the general investors are investing their money in the government bonds, he explained.

“Such kind of government policy would help meet their budget deficit, but it will put an adverse impact on the macro economy in the country”, claimed Mustafizur. The country’s private sector credit growth stood at 13.19 per cent in the financial year 2014-15 against the central bank target of 15.50 per cent. For this reason, the central bank cut the target of the private sector credit growth to 15 per cent for the FY16 from 15.50 per cent for the FY15, according to the latest monetary policy statement.

Criticizing the central bank policy in decreasing private sector credit growth target in the current fiscal, the CPD Executive Director opined, the private sector credit should be at least 17 to 18 per cent for achieving the expected level of GDP growth of the country.

On the other hand, state-owned commercial banks (SoCBs) have once again reduced interest rates on term and fixed deposits, the second such downward revision in four months.

Sonali, Janata, Agrani, Rupali, BASIC and Bangladesh Development Bank Limited (BDBL) announced cuts in interest rates on various term and fixed deposits between 0.25 and 1.0 per cent.

The latest interest rates were approved at a meeting of the board of directors of the banks, after their chief executives had decided on the cutbacks.

Sonali, Janata and Rupali banks already implemented the new rates with effect from October 1.  Agrani, BASIC and BDBL implemented the new rate from October 11.According to the banks, interests on deposits were lower the rates of interest on lending.  The interest rate on fixed deposits for three to six months has been reduced to 7.0 per cent from 7.25 per cent.

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