Bangladesh Bank has expressed its dissatisfaction with the country’s commercial banks as the majority of them are yet to bring down the lending rate to 9 per cent and the deposit rate to 6 per cent.
Two-thirds of the commercial banks are yet to bring down the lending rate to single digit, although they had promised to make the rate effective from July 1, 2018, according to Bangladesh Bank sources.
On Monday, the central bank issued separate letters to the managing directors of commercial banks, suggesting them to bring down the deposit and lending rates within the limits.
The BB, however, did not specify any deadline for the implementation of the rates.
On August 2 last year, former finance minister AMA Muhith agreed with the Bangladesh Association of Banks to set the deadline on August 9, 2018 as most of the banks had missed the July deadline.
BB sources said the private bank owners using political clout realised from the government ‘undue’ demands in the name of implementing the lower lending and deposit rates.
The controversial amendment to Bank Company Act 1991 allowed four directors, instead of two, from a family and extended the tenure of directors to three consecutive terms.
The bank owners also realised their demand for lowering the bank rate to 6 per cent from 6.75 per cent and the cash reserve requirement to 5.5 per cent from 6.5 per cent.
The government met the bank owners’ demands for depositing of 50 per cent of funds instead of 25 per cent by the state-owned agencies in the private banks despite declining trust in the private banks due to Farmers Bank’s (renamed as Padma Bank) failure to repay Bangladesh Climate Trust Fund and Bangladesh Telecommunication Regulatory Commission their deposits with the bank.
Besides, the government also reduced mandatory cash reserve ratio of the banks to 5.5 per cent from 6.5 per cent with a view to tackling liquidity crisis and facilitating the deposit and lending rate implementation.
In line with an announcement made by the BAB, the central bank in December last year suggested banks to implement the 9 per cent rate against the loans with 3-6 months duration.
As per the June-end reports, the central bank, however, found that the banks were yet to implement the lending rate, the BB letter to the commercial banks’ MDs mentioned.
In the FY20 budget speech, finance minister AHM Mustafa Kamal also acknowledged the need for reducing the lending rate.
He said, ‘The move to reduce lending rate to single digit has been made with a view to making industries and businesses more competitive.’
In the post-budget press briefing, prime minister Sheikh Hasina also said, ‘It was always our intention to bring down the lending rates to single digits, but many private banks did not comply.’
‘Strict action will be taken against those who did not comply,’ she said.
Bangladesh Bank governor Fazle Kabir also called on the chairmen and the managing directors of the commercial banks and gave special instructions to implement 9 per cent lending rate and 6 per cent deposit rate.
Bankers and economists, however, said that implementation of the rates would be tough for the banks considering the existing liquidity crisis in the banking sector.
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