Scheduled banks cut their rates of interest on lending further in October, the 22th month in a row, against the backdrop of the businesses’ persistent reluctance to borrow from banks amid a dull business situation in the country, said Bangladesh Bank officials.
BB data showed that the weighted average interest rate on lending in the banking sector declined to 10.03 per cent in October from 10.15 per cent in September.
A BB official told New Age on Thursday that the banking sector was forced to lower the lending rates due to a sluggish credit demand from the businesspeople.
The BB data showed that the weighted average interest rate on deposit of the banks also decreased to 5.33 per cent in October from 5.39 per cent in September.
The weighted average interest rate on lending was 10.24 per cent in August, 10.32 per cent in July, 10.39 per cent in June, 10.57 per cent in May, 10.64 per cent in April, 10.78 per cent in March, 10.91 per cent in February and 11.05 per cent in January of this year.
The rate had declined throughout last year. From 12.32 per cent in January 2015, it had dropped to 11.18 per cent in December 2015.
The BB official said that the majority of the banks had recently cut their rates of interest both on deposits and lending in the face of dull business.
The country’s businesspeople have been adopting a ‘wait and see’ approach for long in regards to expanding their business by taking bank loans due to the sluggish business trend amid political uncertainty and vulnerable law and orders situation, he said.
Due to the lower credit demand from the industrial sector, banks are now having huge excess liquidity that has forced them to rush to invest in government treasury bills and bonds.
The BB official said that the country’s banking sector was now facing excess liquidity of more than Tk 1 lakh crore.
Against the backdrop, rates of interest on all types of T-bills and bonds also dropped in recent months, as most of the banks submitted excessive bids at the auctions for the instruments to invest their idle funds.
The BB official said that banks had trimmed rates of interest on lending throughout last year to encourage entrepreneurs to take loans, but their (entrepreneurs) response was yet to reach a satisfactory level.
Due to the lower credit disbursement, banks also lowered rates of interest on their deposit products to discourage depositors so that they (banks) would not have to face more liquidity, another central bank official said.
The BB is frequently asking banks to disburse more credit to the SME and agriculture sectors to stimulate the private sector credit growth.
A number of banks have been disbursing more consumer loans in recent months to the clients to ensure their profitability.
The banks also cut the rates of interest on consumer loans to 10-11 per cent from 16-18 per cent.
The BB data showed in October the weighted average interest rate on lending stood at 9.15 per cent at the state-owned commercial banks, 9.28 per cent at the specialised development banks, 8.48 per cent at the foreign commercial banks, and 10.37 per cent at the private commercial banks.
The weighted average interest rate on deposit in October stood at 5.25 per cent at the state-owned commercial banks, 6.68 per cent at the specialised development banks, 5.55 per cent at the private commercial banks, and 1.82 per cent at the foreign commercial banks.