The rising interest rate will put the brakes on the runaway private sector credit growth this year as entrepreneurs will be reluctant to take on high-cost funds, said a top banker.

Moreover, maintaining the lower loan-deposit ratio will compel private banks to go slow with lending, said Kazi Masihur Rahman, managing director of Mercantile Bank.

In January, the Bangladesh Bank instructed banks to bring down their loan-deposit ratio to 83.5 percent by June this year to curb aggressive lending. Later the deadline was extended to March next year.

However, the slow credit growth will not affect private sector investment as banks will focus on quality loans, he told The Daily Star in an interview on the occasion of the bank's 20 years in operation.

Last year, private sector credit growth was more than 18 percent. But thanks to the central bank's efforts to curb aggressive lending by banks, it started decelerating from March.

The credit growth was 17.93 percent, down 0.56 percentage points from the previous month, according to data from the central bank.

The lending rate will come down to single digit in the near future as there is enough liquidity in the banking system, said Rahman, who has been in the banking sector for 41 years now.

Liquidity crisis in some banks created panic in the market. But banks like Mercantile, which prudently handled their lending activities, still can lend at single digit, he said.

The bank's loan-deposit ratio remained within the 85 percent ceiling all throughout.

At the end of last year, Mercantile's total deposits stood at Tk 21,697 crore and its loan portfolio Tk 20,301 crore.

"The ongoing liquidity crisis did not affect Mercantile Bank," said Rahman, who joined the bank in January 2016.

As a result, the bank did not see much fluctuation in its deposit and lending rates in recent times, when many banks raised their rates by as much as 4 percentage points, he said.

At the end of the first quarter of 2018, its average deposit rate stood at 6.05 percent, up from 5.85 percent in the previous quarter.

Its average lending rate in March stood at 9.37 percent, which is below the industry average of 9.64 percent, according to data from the central bank.

However, most of the banks are lending at more than 11 percent interest since January.

"The high interest rate will increase default risks," he said, while advising entrepreneurs to turn to the stock market for their funding needs.

Bangladesh's capital market is now a mature platform and the addition of the two bourses from China as the strategic partner of Dhaka Stock Exchange will bring more transparency to the stock market, he said.

Anticipating there might be a deposit crisis amongst banks, Mercantile took on a campaign in middle of the last year to attract savers. "We worked with a clear plan over deposit collection and credit management."

Mismanagement of lending activities is responsible for the banking sector's current problems and all banks CEOs are not responsible for that, he said.

"There is no way you can do well in a competitive market working in an unplanned manner."

In the last two years, the bank improved its financial performance and did better than the first generation banks, Rahman said.

"Now the challenge is to keep up that performance."

The bank has planned to lend cautiously this year to sustain its performance growth.

"We will put focus on nursing the existing clients instead of reaching out to new clients to keep the loan-deposit ratio within the new authorised limit of 83.5 percent."

In its 20 years journey, Mercantile Bank has leapfrogged many first and second generation banks in all the performance indicators, he said.

For instance, it is now in the seventh position in terms of operating profits: its total operating profits last year was Tk 657 crore.

Mercantile Bank also maintained its upward trend in dividend declaration last year, when most of the banks announced comparatively lesser dividends as they could not do well, Rahman said.

The bank declared 22 percent dividend for its shareholders last year, up from 20 percent a year earlier.

"Cautious lending helped us make good profit in the competitive market."

In 2017, its net profit was Tk 301 crore, a 35 percent increase from a year earlier.

The bank's non-performing loan ratio at the end of 2017 was 3.79 percent, down from 5.13 percent in the previous year.