Loans historically cheap, but not many takers
Loans in many categories have now come down to a historical low of single digits, playing into businesses' hands -- and yet the demand for credit and investment is not picking up.
Be it term loan, corporate loan, home loan or working capital, all can be availed by a good client within single digit interest rate.
“Interest rate goes down to as low as 8 percent for good corporate customers whose loan payment record is regular,” said Shafiqul Alam, managing director of Jamuna Bank.
Fervent competition among banks is reducing the rates further, said Mashrur Arefin, additional managing director of City Bank.
There are 57 banks and nearly three dozen non-bank financial institutions in Bangladesh. All the lenders compete with each other to net customers from a $220 billion economy.
City is offering home loans at 8.75 percent -- which is 9 percent for most of the banks -- down from 11 percent a year ago. The interest rate for auto loan costs 10-11 percent, which was 14-15 percent last year.
“No banks will take the risk of losing good clients,” said Arefin, who is also the chief communications officer of the bank.
Even unsecured loans for small and medium enterprises have also gone down significantly in the last one year.
The interest rate for small and micro loans now cost 15-16 percent, down from 22-23 percent a year ago, according to Brac Bank, the market leader in the SME loan category.
“The demand for credit is low and we have to dig out new avenues and customers to invest the funds,” said Selim RF Hussain, managing director of Brac Bank, whose SME loan portfolio stands at upwards of Tk 22,000 crore.
The speed at which the interest rate is sliding down is unsustainable, he said. “Intense competition among too many players rattles the market.”
Dutch-Bangla Bank's cost of operation is higher than many other market players as both the lenders have huge customer base.
“We are under pressure to reduce the interest rates further but we cannot do so without a cut in the operational costs,” said Abul Kashem Mohammad Shirin, the newly appointed managing director of Dutch-Bangla Bank.
Dutch-Bangla Bank's cost of operation is nearly 5 percent, which is 2 percent for many banks. But on the bright side, the bank's deposit is lower than many others. Altogether, Dutch-Bangla Bank's cost of fund stands at around 7 percent.
The low interest rates though are not translating well in the economy.
Small businesses still have to pay higher rates of interest and face hassles from banks, according to Abdus Salam Murshedy, a director of Premier Bank.
“Banks always run after clients who have a good reputation and strong balance sheets.”
Besides, the lending rates did not decline in proportion with the deposit rates, he said, adding that despite the falling interest rate investments are not coming up due to the energy crisis.
“When existing factories face energy crisis, no new investors will come forward in this situation,” said Murshedy, managing director of Envoy Group.