Pvt banks offer trivial cut in lending rates

Private commercial banks yesterday submitted a proposal to the Bangladesh Bank (BB) suggesting a slight decrease in existing high lending rates and service charges.
The banks proposed reduction of the interest rate on term lending to a maximum of 14.75 percent from the existing average rate of 16 percent.
However, banking data contradicts the figure of existing average interest rate on term lending mentioned in the proposal.
According to the last month's BB data, out of 29 banks only two kept the interest rate on term lending at 16 percent, six at 15.5 percent and the rest between 12 and 15 percent.
On working capital lending, the banks suggested a maximum cap of 14.5 percent against the current average rate of 15.5 percent for productive sectors. But current interest rate on capital lending in most of the banks is below 15 percent, show BB data.
“The bankers came up with specific proposals on reducing lending rates in only two cases -- term lending and working capital,” said a BB official quoting from the proposal.
The banks proposed to waive some of the service charges and reduce at least three to four types of other charges.
“It is therefore our suggestion to establish a cap of 0.50 percent per quarter on letter of credit opening commission from the current 0.70 percent per quarter,” the proposal, prepared by the owners and top officials of private commercial banks, reads.
But BB data show that none of the banks is currently taking the mentioned opening commission of 0.70 percent on letter of credits.
Only two banks charge at a rate of 0.60 percent in the first quarter on letter of credits while rest between 0.40 and 0.50 percent in the first quarter. As per the current system, such charges come down between 0.30 and 0.40 percent from the second quarter.
The banks told the BB officials that the proposed lending rates and service charges would be implemented from the current month.
A team comprising members of Bangladesh Association of Banks (BAB) and Association of Bankers Bangladesh (ABB) submitted the proposal to the central bank Governor Salehuddin Ahmed.
“We got proposals from the bankers and let them implement the new structures,” he said adding, “I can't enforce anything on the banks.”
“The bankers told me that the proposals are practical and these could be implemented,” he said.
Asked about the central bank's reaction on the bankers' proposal, the BB governor said, “Bankers gave some specific proposals and we did not react to those.”
BAB Chairman Nazrul Islam Majumder told reporters that the banks proposed to keep the spread (difference between lending and deposit rates) within 5 percent, which is now 6 percent.
“We will not keep any cap in case of interest rates of deposits, but banks will reduce the interest rates on lending,” he said. “We have proposed to keep interest rate on industrial lending highest at 15 percent,” he added.
The proposal said non-banking financial institutions and foreign banks should also conduct a similar review.
The banks proposed to reduce interest rates for lending to productive sectors, which shall exclude consumer and card lending. “Due to high distribution, collection and monitoring costs and inadequate/no collateral support we would recommend keeping the ceiling of the SME sector above other productive lending rates,” it said.
They also proposed to reduce L/C opening charges to 0.60 percent from 0.80 percent per quarter and set a maximum cap L/C opening charges, where the banks have 100 percent cash margin, at 0.25 percent per quarter which is currently 0.60 percent.
The banks proposed to set a maximum cap for L/C transmission charges of Tk 3000 against current Tk 5000, a cap of Tk 1000 for L/C advising charges against existing Tk 1500, and a cap for amendment advice of Tk 1000 against current Tk 1500.
The suggestions also included setting a cap for arrangement adding confirmation locally of 0.25 percent which is currently 0.5 percent, a cap for Proceeds Realization Certification of Tk. 500, which is now Tk 1000, maximum cap of Tk 200 against current Tk 500 for issuance of back-to-back L/C certificate and maximum cap of Tk 200 against current Tk 500 for issuance of C&F certificate.
The banks also proposed to waive several charges fully. Those include foreign correspondence charges (local component) of Tk 1500, charges for endorsement of copy documents, which is currently Tk 500, LC cancellation or expired utilisation LC charges of Tk 1200 and handling charges on export bills, which is currently Tk 300.