Lending rates stay high despite deposit interest rate cuts twice in just five months.

The latest one percentage point slash in deposit rate was enforced by 30 private commercial banks (PCBs) from 16 of this month. Earlier in April, the rate was capped at 9.5 percent.

PCBs' persistent reluctance to slash lending rates, a long time demand from the business community, has also irked the central bank.

“In a situation of surging market liquidity with low fund off-take for imports and investment activities from faster growing export receipts and remittance inflows, banks were quick to respond with slashing deposit interest rates, but not with commensurate decline in lending interest rates,” Bangladesh Bank said in its latest monetary policy review.

Banks, especially local private and foreign ones, are often blamed for charging high interest rates. Businesses have been complaining on high borrowing costs for years.

Spread, a gap between the lending and deposit rates, also remains high in Bangladesh compared to other countries.

Businesses expected that the sluggish domestic investment demand and huge excess cash would prompt banks to go for cutting lending rates as other countries do so to spur demand.

“There is scope to cut the lending rates as the government has given banks a huge concession by reducing tax rate by 2.5 percentage points,” said Abdul Hafiz Chowdhury, president of the Metropolitan Chamber of Commerce and Industry (MCCI).

Chowdhury cited example of many countries that came up with a reduced lending interest rate to spur their economies amid recession.

He said bankers say that they could not reduce the lending rates mainly due to bad loans.

The MCCI president said banks charge 13 percent for different sectors, but it is 15 percent for commercial lending. Consumer loans cost much higher.

Clients are yet to be benefited from the government's move to cut corporate tax rate of banks and other financial institutions by 2.5-percentage point to 42.5 percent in July despite banks' hefty profit income.

Bangladesh Bank Governor Dr Atiur Rahman says he wants clients to benefit from such corporate tax cuts.

The BB in its monetary policy review also pointed out that besides inflation, there are other structural factors for what lending rates tend to remain relatively high.

“All the alternative non-bank financing options for borrowers in Bangladesh (NBFls, MFls, debt issues in capital markets) happen to be costlier than bank loans. These options therefore impart no competitive downward pull on lending interest rates of banks,” the BB analysis said.

It said investors in the capital market have limited appetite for debt issues of corporate houses, as their past experiences were not that satisfactory. In advanced economies, interest rates are lower because good corporate houses can raise equity cheaply and quickly in the capital markets.

“This is not yet the case for corporate borrowers in Bangladesh, generally because of limitations in quality of their corporate governance and in transparency of their disclosures,” the central bank analysis said.

sajjad@thedailystar.net