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SINGLE-DIGIT INTEREST RATES Banks bracing for big hit on profits

Star Business Report

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Banks will have a hard time logging in profits in the coming days because of the latest government decision to fix interest rate for lending at 9 percent and for deposit at 6 percent.

Although the government has announced splitting its funds equally between the state-run banks and private ones, the latest decision may create a haphazard situation for them nevertheless, said experts and a good number of managing directors of banks.

“Banks will have to implement the new rates as per Prime Minister Sheikh Hasina’s instruction,” Finance Minister AHM Mustafa Kamal told reporters after a meeting with private banks’ sponsors and managing directors at the headquarters of Bangladesh Association of Banks on Monday.

While the bank sponsors went along with the decision, the managing directors said it will be much too difficult to implement.

For instance, banks will have to incur a large amount of loss from their retail lending programme if they set 9 percent interest rate on home, auto and personal loans as well, said managing directors of three banks wishing not to be named due to the sensitivity of the matter.

A good number of employees is required to operate the retail programme, and the cost of monitoring and supervision on retail lending is much higher than corporate lending, they said.