Who controls the private banks?
Experts and ordinary citizens alike have been sceptical about the impact of high interest rates that have prevailed since some time now. Bangladesh Bank too has expressed concerns about the raised interest rate spread and is said to be monitoring the situation closely.
Investment has been around 23 percent of the gross domestic product despite the nation having crossed the 8 percent benchmark in terms of growth. The Daily Star commented on the perpetual decline in the deposit growth—raising concerns about the stability of the banking sector. This low investment does not bear good news for the creation of new jobs in the country.
In order to encourage private spending, measures have been taken in order to reduce the interest rate spread. In January 2019, the weighted average interest rate spread was 4.15 as compared to the higher rate of 4.41 in 2018 for scheduled banks. Still, many banks, owing to relaxed regulations, maintain their average interest rate above the preferred and optimal rate. Banks are now trying to set interest rates, not conforming to the ones established by the central bank, but driven by their own profit maximising motives.
The government must undertake the difficult task of addressing these discrepancies in the banking sector. With the banks already suffering from weak administration, this will have to be dealt with very tactfully.
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