Businesses see benefits, economists doubtful

Moinul Haque | Published: 22:14, Feb 25,2020


Business leaders on Tuesday said that the Bangladesh Bank decision to cut the lending rate to 9 per cent for all loan products, except the credit card, from April 1 would boost the expansion of industrial sector, especially the manufacturing sector.

Economists said that although arrangement of low-cost capital was good for increasing business competiveness, there was doubt whether the single-digit lending rate could be implemented by keeping unaddressed underling problems like high amount of non-performing loans in the country’s banking sector.

Businesses said that the credit flow to the private sector, which had stagnated in recent months, would increase once the single-digit lending rate became effective.

Federation of Bangladesh Chambers of Commerce and Industry president Sheikh Fazle Fahim in a statement termed the Bangladesh Bank move to cap the lending rate at 9 per cent as a ‘relief’ for entrepreneurs, saying ‘We have long been advocating for lessening cost of doing businesses in our country.’

‘We are encouraged that it is one element of ease of doing business in our country which will help the economy to grow through new investment and expansion,’ he said expressing his gratitude to prime minister Sheikh Hasina.

‘We hope the finance ministry with stakeholders will re-examine overall banking operational models to minimise unproductive expenditures that will lower overhead and diversify access to capital for private sector investors,’ said Fahim, adding, ‘To encourage consumer spending, b2b and widen formal economy, credit card usage should be encouraged with ease and lower cost.’

Asif Ibrahim, former president of the Dhaka Chamber of Commerce and Industry, told New Age that the single-digit lending rate would mostly benefit the industrial borrowers who had existing loans at a higher rate.

The initiative would benefit particularly export-oriented manufacturing industries which are struggling with their competitiveness, he said.

Mohammad Hatem, first vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association, thanked prime minister Sheikh Hasina for the decision to bring down the interest rate to single digit.

‘The initiative has been taken by the government to protect the country’s industries and the regulatory body will have to monitor the banks so that the single-digit lending rate is implemented properly,’ he said.

Without strict monitoring, banks would not implement the Bangladesh Bank decision to bring down the interest rate to single digit.

Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, termed the government move to introduce single-digit lending rate from April 1 as a welcome initiative.

She requested the government to drop the provision of imposing additional 2 per cent interest on the default instalment of term loans and on the default amount of working capital loans for the time being.

‘With added pressure of coronavirus, this could become a burden for some who may fail. But I agree with the punitive measure in principle so that wilful defaulters of all sectors can be stopped,’ Rubana said.

Asked about the setting of lending rate by the government, multinational telecom operator Robi Axiata Limited managing director and chief executive officer Mahtab Uddin Ahmed told New Age on Tuesday, ‘As a borrower, I will always encourage it.’

‘However, at the same time, [interest rate of] any kind of debt should be set based on the demand supply situation,’ said Mahtab, adding, ‘It may not be the balanced way of running money market.’

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, said that cost of capital should be reduced as the low cost of capital increased the competitiveness of business.

Although the low cost capital is good for economy, without addressing the underlining factors those are posing substantial threat to the banking sector it would not possible to implement single-digit interest rate, he said.

Mustafiz said that it would be challenging to implement 9 per cent interest rate without addressing the issues of non-performing loans, inefficiency and poor governance in the banking sector.

He feared that due to the initiative, banks would be encouraged to give corporate loans and the small and medium enterprises might be neglected as the operation costs of SME loans were higher than corporate loans.

Lower rate of interest always encourages business extension and investment but it should be determined by the market, South Asian Network on Economic Modeling executive director Selim Raihan told New Age on Tuesday.

He said that instead of determination by the market, the single-digit interest rate was determined administratively as the country’s banking sector was suffering from various difficulties including loan scams, defaulted loans and poor governance.

‘Despite having commitment from the government for reduction, the amount of defaulted loans has not dropped and I think the administratively determined lending rate would not work effectively due to a number of reasons,’ Selim said.

He said that most probably banks would disburse loans at the rate of nine per cent interest on paper but they would impose other charges and fees which would increase the cost of loan as it would be difficult for the banks to attract deposit with 6 per cent interest rate.

Administratively determined interest rate could not solve the problems of banking sectors rather forming an independent banking commission and implementing its recommendations could be a sustainable solution, Selim added.

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