Industrial Loans: Central bank may cap interest rates
Bangladesh Bank may cap the interest rates on industrial and working capital loans on January 1 as the government moved to bring down the lending rates to single digits to give a much-needed boost to job creation and private investment.
Following an instruction from the finance ministry, the central bank yesterday formed a seven-member committee headed by SM Moniruzzaman, a deputy governor of the Bangladesh Bank, to bring down the interest rate to single digits.
The committee comprised representatives from private and state-owned banks representatives and will submit its recommendations within a week.
The BB committee would recommend ways to bring down the lending rates, the deposit rates and the defaulted loans.
“Following the recommendations, we will implement the decisions,” Finance Minister AHM Mustafa Kamal told reporters yesterday.
Other members of the committee are Kazi Akram Uddin Ahmed, chairman of Standard Bank, Zaid Bakht, chairman of Agrani Bank, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, Md Obayed Ullah Al Masud, MD of Rupali Bank, Shah A Sarwar, MD of IFIC Bank, and Mehmood Husain, MD of NRB Bank.
Kamal also set January 1 as the latest deadline for banks to bring down the lending rates to single digit and reducing defaulted loans by this year.
“Single digit interest rates will be implemented from January 1,” he said after a meeting with chairmen and managing directors of private and state-owned banks at the National Economic Council auditorium at the planning ministry in Agargaon.
Kamal said in the beginning, the government would introduce single digit interest rates for industrial loans and working capital loans.
“The interest rate on the industrial loans and working capital loans would have to be in single digit to create jobs and attract investment.”
The single digit interest rate will not be applicable for consumers and housing loans and credit cards in January. “If needed we will include them later,” the minister said.
Some loans already enjoy single-digit interest rate.
In the last two years, the government has provided various benefits to banks to bring down the interest rate below 10 percent, but only state-owned banks have implemented the decision.
Initially, banks had announced that the interest rate on lending and deposit would come down to single digits from July 1, 2018. But, none of the rates came down, and banks blamed it on the deposit rates being sticky upwards.
Later, they pledged to lower the interest rate on lending to single digit from August 9 in the same year. But it also has not been materialised.
At yesterday’s meeting, private banks placed a number of recommendations to implement the single digit interest rate. One of them is capping the deposit rates of project funds parked with banks.
Regarding defaulted loans, Kamal said high lending rates are the main factor behind the increasing non-performing loans. “There are no other countries where interest rates are so high.”
The finance minister, after taking office in January this year, assured that the total default loans will not increase by even a penny.
But in reality, the defaulted loans have continued to increase since then.
Defaulted loans surged 24 percent to Tk 116,288 crore in September compared to that in December last year.
Kamal yesterday said the defaulted loans would not increase from December. “Rather, the defaulted loans will come down.”
He said laws would be amended to reduce the defaulted loans. The proposals aimed at the amendments would be placed at the cabinet and parliament.
The central bank has taken some steps, including giving long-term loan rescheduling facilities to reduce the defaulted loans. But a writ filed with the High Court delayed its implementation, Kamal said.
“Many borrowers stopped repaying loans in the hope of availing the loan rescheduling facilities, pushing up the defaulted loans. Now the verdict has been announced and the Bangladesh Bank will implement its plan and defaulted loans will come down.”
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