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Banks cut deposit rate but charge high interest on loans

Rejaul Karim Byron
The hike in interest rate invoked sharp criticism from the business community, including the Federation of Bangladesh Chambers of Commerce and Industry, the country's apex trade body***
Commercial banks have brought down the interest rate on deposits quickly after a self-imposed cap earlier this month, but the lending rate is still above the ceiling.
The Association of Bankers Bangladesh (ABB) decided to offer an interest rate of 12.5 percent on deposits and charge 15.5 percent for industrial term loans and working capital to check unhealthy competition in the market.
However, loans for consumers, home loans and credit cards will be out of the purview.
On Monday, Bangladesh Bank (BB) released the bank deposit and lending rates for the month of February.
Except for one foreign bank, the highest interest on deposit of all other banks is 12.5 percent, according to central bank statistics.
In January, the interest rate on the deposits of many banks was as high as 14.5 percent.
In case of the lending rate among 30 private banks, the term loans of 16 banks were above 15.5 percent. The lending rate of many banks is between 17.5 and 18 percent.
The banks that still have interest rates higher than the cap on term loans and working capital are IFIC Bank, City Bank, United Commercial Bank, ICB Islamic Bank, South East Bank, Dhaka Bank, Mercantile Bank, One Bank, Exim Bank, Standard Bank, Mutual Trust Bank, Bangladesh Commerce Bank, Jamuna Bank and BRAC Bank.
An official of a private bank said the cost of funds of many of the banks is much higher and they will gradually bring down the lending rate within a limit.
On January 4, the central bank withdrew the 13 percent interest rate limit on bank loans, prompting the private banks to increase their lending rates.
After the limit was withdrawn, many banks increased the interest on industrial loans and workingcapital.
The hike in interest rate invoked sharp criticism from the business community, including the Federation of Bangladesh Chambers of Commerce and Industry, the country's apex trade body.
Following 'moral suasion' by the central bank, ABB itself imposed a cap so that no bank can abnormally raise the deposit and lending rates. Until fiscal 2007-08, there had been no cap on the deposit or lending rates as the country introduced a liberalised policy in the banking system in 1992, a senior BB official said.
The immediate past caretaker government imposed a cap on the lending rates due to the global economic crisis.
While announcing the monetary policy statement in July last year, the centred bank said it would withdraw the cap on lending to bring down high credit growth to check inflation.