Businesses demand cuts in lending rates
Businesses yesterday reiterated their demand for cutting lending rates and putting a cap on them, while the central bank governor said rates will decline in a natural process.
“The interest rates will come down in line with the rules of economics,” Governor Atiur Rahman said.
He spoke at a seminar on bank interest rates, organised by the Federation of Bangladesh Chambers of Commerce and Industry at Bangabandhu International Conference Centre.
FBCCI President Kazi Akram Uddin Ahmed moderated the discussion.
There is enough liquidity in the banking sector, while credit demand is comparatively mild, he said.
"But the banks will have to use their funds; otherwise it will have an impact on their balance sheets.”
The average interest rate for lending has now come down to 13 percent and that for deposit to 11.5 percent, Rahman said.
“Don't worry. Just keep patience and you will see the interest rates at your expected level.”
The BB governor, however, said reducing the interest rates is not the only measure to cut the cost of doing business. “There has to be adequate infrastructure and utility facilities, and a business friendly environment.”
He also urged bankers to provide credit cautiously so that they can realise the disbursed amount in time.
“The interest rate is high where the risk is high,” he said, adding that it would be difficult to reduce the interest rates if default loans rise.
Finance Minister AMA Muhith said inflation is under control, which is a prerequisite to keep the interest rate low.
“When there is a need, we fix the interest rates,” he said, citing that they have recently set a 12 percent rate on credit for onion imports.
However, the minister said, discussions should continue on how the existing interest and deposit rates as well as spread can be brought down.
Earlier, MA Hashem, chairman of United Commercial Bank, recommended the lending rate be fixed at 11 percent and the deposit rate at 7 percent.
He said 70 percent of the deposits are generated from fixed deposit receipts at 12 percent. “If the deposit rate is not reduced, how will it be possible to cut the interest rate on loans?”
AK Azad, a former president of the FBCCI and chairman of Shahjalal Islami Bank, said the finance ministry and the central bank will have to set the lending rate, spread and the rates on deposit and savings instruments.
Nazrul Islam Mazumder, president of Bangladesh Association of Banks, said it is not possible for businesspeople to pay back loans at the interest rates of 17-18 percent.
“Even I cannot pay the loans back. If I repay the loans, I will not survive.”
M Aslam Alam, secretary to the bank and financial institution division under the finance ministry, said it is not possible to fix the interest rates on lending or deposit.
“We are a free-market economy and in such an economy, the interest rates cannot be set by the government or the central bank.”
Presenting a keynote paper, Ahsan H Mansur, executive director of Policy Research Institute, said if inflation falls to 5 percent, the entire interest rate structure could be brought down by 2.5 percent to 3 percent over time.