Outcry at interest rate capping
FROM PAGE b4
The interest rate on lending will automatically go down if default loans and inflation can be lowered, said Mansur, also a former official of the International Monetary Fund.
The focus should be on recovering default loans but there has been no discussions to that end, said Mohammed Farashuddin, a former governor of the central bank.
The 9 per cent and 6 per cent interest caps will create a problem for new banks in running their businesses.
The central bank should not fix any interest rate ceiling on SMEs and consumer loans like credit cards.
“I have doubts on whether the 9 per cent interest rate will be effective given the perspective of the market economy,” Farashuddin added.
Not one central bank in the world determine the interest rates in their country as only commercial banks do so based on market demand, said Mamun Rashid, managing partner of PricewaterhouseCoopers (PwC) Bangladesh.
The government of Kenya earlier implemented such interest rate ceilings but was later forced to backtrack from its decision.
The single-digit lending rate will help businesspeople but it will not bring any good for depositors.
The low interest rate on deposits will encourage people to invest in land, gold and fictitious cooperative societies and multi-level marketing companies, Rashid said, adding that a good number of people will launder their money abroad as well.
Banks disbursed loans between 7 and 9 per cent interest rates in 2015 and 2016, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
The interest rate on lending was fixed by the market in line with market demand.
“We should improve corporate governance in the banking sector. And the authority concerned should strengthen the judicial system to tackle habitual defaulters.”
Controlling habitual defaulters is a tough job as many of them usually take political shelter, said Rahman, also a former chairman of the Association of Bankers, Bangladesh, a forum of managing directors in the banking sector.
“We should boycott the habitual defaulters socially. Countries like Nepal have already taken such measures against the delinquents.”
Remittance may decrease if the interest rate on deposits is brought down and a good amount of funds will escape the banking sector, Rahman added.
“We should accept the 9-6 per cent bound positively as there is no other option,” said Mashrur Arefin, managing director of City Bank.
Banks should emphasise on developing human resources as a large number of employees are not digitally efficient, he added.
The four state run lenders -- Sonali, Janata, Agrani and Rupali -- have been following the single-digit interest rate for one and an half years, said Zaid Bakht, chairman of Agrani Bank.
“I do not see any cause to be panicked as Agrani Bank’s deposit frequency has not declined despite setting a 6 per cent interest rate.”
State run banks will welcome SME clients if they do not get loans from private banks, Bakht added.
The central bank has the power to determine the interest rate on all deposits and lending products as per the Banking Companies Act 1991, said Fazle Kabir, governor of Bangladesh Bank.
The central bank earlier set an interest rate cap on farm loans when the interest rate on lending increased, he said while addressing the event as chief guest.
Banks now enjoy excess liquidity of more than Tk 100,000 crore after maintaining their statutory liquidity ratio.
They will have to give out loans to SME and the manufacturing sector as lenders will not be allowed to decrease the funds flowing in to the industrial sector below their average credit growth in the last three years, Kabir said.
He went on to hope that investment would gain tempo due to the 9 per cent interest rate on lending.
“The central bank is following due diligence while taking this initiative. It recently provided a licence to a new bank after scrutinising it in detail for three years,” Kabir said.
Dewan Hanif Mahmud, editor of Bonik Barta, moderated the event, where Khwaja Shahriar, managing director of LankaBangla Finance, also spoke.