Single-digit lending rate from April 1

Bangladesh Bank sets the effective date amid caution of economic slowdown

HM Murtuza | Published: 01:03, Feb 25,2020


Bangladesh Bank on Monday set a ceiling on interest rate for all the lending products, except credit cards, of the banks at 9 per cent with a view to taking the economic expansion at the desired level.

In a circular, the central bank on Monday fixed April 1 this year as the effective date for the lending rate implementation.

Along with the fresh loans, banks will have to bring down the lending rates  of all the existing loans and advances within 9 per cent from April 1 this year, an official of the central bank said.

However, Former Bangladesh Bank governor Salehuddin Ahmed told New Age that fixing the lending rate would hardly bring any positive results for the banks, customers as well as for the economy.

Dubbing the move a wrong policy, the seasoned economist cautioned that the country’s economy may be impacted adversely due to the move.

‘I do not understand, in what consideration such a move is taken when all other factors of the economy are market-oriented,’ the former BB governor said.

Depositors would be reluctant to keep money in banks while banks would be reluctant to issue credit also, thus resulting in credit growth fall and subsequent negative impact on the economy, he said.

The BB could have reduced the interest rate spread, he said, questioning, ‘How the lending rate can be fixed.’

The BB circular also said that the banks will be able to impose additional 2 per cent interest on the default installment of term loans and on the default amount of working capital loans.

Apart from the 2 per cent additional charge, banks were barred from the imposition of any additional interest, charge, fees on its lending products.

Interest rate of the pre-shipment loans against export would remain unchanged at 7 per cent, the BB said.

The BB in its circular specified that the disbursement of loans to manufacturing and industry segment of the small and medium entrepreneurs cannot be less than the average loan disbursements to those sectors in the preceding three years.

The government has been pressing the banks to implement 9 per cent lending rate and 6 per cent deposit rate for around one-and-a-half year.

In the pretext of the rates implementation, the owners of the banks have realised a number of demands in last couple of years.

As part of the government’s drive to enforce the rates, Financial Institutions Division on January 19 this year set the rate at the highest 6 per cent for deposition of a maximum of 50 per cent of the state agencies’ funds at private banks.

The division set the interest at 5.5 per cent for deposition of funds by the state agencies at public commercial banks.

On August 2, 2018, the then finance minister AMA Muhith had first announced that the single-digit lending and deposit rates would come into effect on August 9 of the same year.

The government has fulfilled a host of demands made by the banks to facilitate the interest rate implementation, but the rates have remained unimplemented as the Bangladesh Association of Banks delayed the implementation for a number of occasions on various pretexts.

For the last instance, the single-digit lending rate implementation was deferred to April 1 this year from December 31 last year amid opposition from the bank owners.

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