A leading economist and top bank executives on Saturday said that it would be difficult for banks to bring down interest rate on deposit to 6 per cent and lending rate to 9 per cent given the country’s inflation situation and banks’ non-performing loans.
At a conference on ‘prevailing money market situation and way forward’, organised by Institute of Chartered Accountants of Bangladesh at its auditorium, they also stressed for governance and accountability in the banking sector which is grappling with liquidity shortage amid rising defaulted loans.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that it would be difficult for banks to cut down deposit rate to 6 per cent as the inflation rate in the country was around 6 per cent.
‘If the banks bring down the deposit rate to 6 per cent, how will a bank give incentive to a depositor as the rate of inflation is around 6 per cent?’ he said.
Besides, he said that with over 10 per cent non performing loans, it will be tough for the banks to cut the interest rate.
Mustafiz criticised Bangladesh Bank for failure to play due role in regulating banking sector.
Although the bank owners’ association recently announced to cut down the deposit rate to 6 per cent and lending rate to 9 per cent, most of the banks are grappling to implement the decision.
Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman, who is also the managing director and CEO of Dhaka Bank, said that move to cut the deposit and lending rate to 6-9 per cent had created a tricky situation in the banking sector.
He said that bank CEOs were bound to implement any decision taken by the directors.
He said that a situation of lack of confidence in banking sector had been created because of irregularities only a few banks although majority of the banks were performing well.
Mahbub said that there was lack of autonomy of CEOs although Bangladesh Bank had given assurance that it would protect the chief executives.
Prime Bank deputy managing director Mohammad Hibubur Rahman Chowdhury said that the bank owners’ directive about cut in interest rate was not clear.
The bank CEOs have been asked to cut lending rate to 9 per cent, but it is not clear for which sector the lending rate would be 9 per cent, he said.
On the other hand, it has been published in newspaper that the interest rate on 3-month deposit would be 6 per cent, but it is not clear what would be interest rate for 4-month deposit, 6-month deposit or other deposits, he said.
There is an over regulation in forcing banks to cut interest rate in this manner, he said.
BRAC Bank deputy managing director and CFO Md Abdul Kader Joaddar, who presented key-note paper, that tight liquidity situation of banks was driving up the interest rate.
He said that although the announcement was made to cut interest rate, there was shortage of fund to give loans.
He said that high non-performing loans were posing challenges on the banks’ solvency.
He recommended for cutting the interest rate of national savings certificate as high interest rate of NSCs was creating ‘noise’ in money market.
Joaddar also suggested strengthening of governance and compliance standard among banks and developing alternative funding sources like bond market and capital market for long term sources of funds for industries.
ICAB president Dewan Nurul Islam gave welcome speech while its member council and vice president Mahmudul Hasan Khusru moderated the conference.