The country’s scheduled banks on Wednesday started executing 9 per cent ceiling on all sorts of loans even on the existing ones as per a regulatory order amid doubts about the new banks’ ability to source fund at 6 per cent interest rate.
The banks have started implementing the rate as the Bangladesh Bank on February 24 this year made it mandatory for the banks to implement the 9-per cent celling on lending from April 1 this year.
In the circular, the BB has included all the bank loan products except the credit card-based consumer finance items.
The lending rate comes into effect at a time when the banks’ services are limited to only cash deposit and withdrawal, remittance encashment and foreign trade finance due to the coronavirus outbreak in the country.
Although the country’s businesses expressed their satisfaction over the lending rate implementation, bankers were sceptical about the possibility of implementing the lending rate and its subsequent impact.
The emergence of the pandemic coronavirus across the globe has forced the Bangladesh Bank to issue a number of policy facilities for the businesses as the Bangladesh government has imposed a countrywide shutdown, leaving businesses and shops closed across the country.
Bankers were in an apprehension that the defaulted loans would increase sharply in the coming days even after the BB’s policy support.
The private sector credit growth, which tumbled to 9.13 per cent in February, would deteriorate further, they said.
Sourcing of funds at the rate of 6 per cent would be the most challenging for the new banks.
South Bangla Agriculture and Commerce Bank Limited, a fourth generation bank, has also moved to implement the BB-imposed lending rate.
Asked whether SBAC Bank would be able to source adequate fund if the first or second generation banks offered 6 per cent interest on deposit products, SBAC Bank’s acting managing director and chief executive officer Tariqul Islam Chowdhury told New Age, ‘It’s a critical issue and we are also thinking over the issue.’
‘It would be tough for the private banks to attract people by offering 6 per cent interest on deposits if the government banks offer 5.5 per cent interest,’ he said.
Usually well-performing banks can attract more clients even after offering lower deposit rates.
‘Although the implementation of the rate would be challenging for us, there was no alternative but complying with the regulatory instruction,’ said Tariqul.
Association of Bankers, Bangladesh chairman Ali Reza Iftekhar told New Age that all banks had already implemented the single-digit lending rate for existing loans as well as for the fresh ones.
‘With the existing challenges on the single-digit lending rate implementation, the outbreak of coronavirus brings new challenges for us,’ said Iftekhar, also the managing director and chief executive officer of Eastern Bank.
Mentioning that the demand for credit dropped significantly, he said, ‘Challenges would reach a peak after June.’
Mutual Trust Bank managing director and chief executive officer Sayed Mahbubur Rahman told New Age, ‘We are going by the central bank’s circular as we do not have any scope for violating the BB circular.’
He, however, mentioned that they would face a huge difficulty in the coming days due to the implementation of the 9-per cent ceiling on lending rate.
The outbreak of coronavirus has made the situation more difficult, he said, adding that the corporate, and small and medium entrepreneurs would fail to repay instalments against their loans due to the halt in business activities.
Apart from these, the government would also slow down payments in the coming days as its revenue collection would tumble due to the ongoing closure of almost all the businesses, Mahbub said.
He, however, admitted that there was a need for the implementation of single-digit lending rate for the sake of country’s businesses and individuals.
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