Finance Minister Abul Maal Abdul Muhith has assured the countrymen of undertaking an effective measure to reduce the bank’s interest rates for increasing private sector credit flows, which will eventually improve the overall investment climate.
The minister, however, did not elaborate how the bank’s interest rates would be reduced while placing the budget proposal for the next fiscal in parliament yesterday.
The budget proposal put special emphasis on the private sector investment for achieving the GDP growth.
As part of the government’s strategy to increase the private sector investment, Muhith proposed to reduce the interest rates and stressed the need for further expanding the small and medium enterprises across the country.
“We will attach high priority to the small and medium enterprises and take necessary steps to improve the skills of the small and medium enterprises for further increasing their productivity,’’ he said in his budget speech.
It will be really difficult to bring down the interest rate as banks might face liquidity crisis in the new fiscal year due to higher borrowing target from the banking system set by the government, said a senior executive of a private bank.
‘’If the credit demand puts any extra pressure on the money market, the interest rate would, rather, climb up. It is contradictory to increase private sector credit flows amid higher borrowing target by the government,” he added.
The interest rates against credit remained higher in the current fiscal year despite lower credit demand and higher foreign loan inflow, said a senior executive of Bangladesh Bank.
The private sector credit growth was 11.6% in July of current fiscal year against the monetary policy target, which was set at 12.5% by Bangladesh Bank. The growth remained around 11% during the 11 months and it stood at 11.5% in May, which was far below from the monthly monetary target of 16%.
Despite the sluggish credit growth, the interest rate remained above 13% during the same period.
The ceiling of bank borrowing has been set at Tk31,221 crore in the proposed budget which 20% higher from Tk25,993 crore for the current fiscal year.
Of the total amount of borrowing, Tk19,824 crore has been set for long term credit and Tk11,397 crore for short term credit, which was Tk16,955 crore and Tk13,027 crore respectively in the revised budget of the current fiscal year.
“We are continuing our efforts to enhance efficiency in banking sector. As a result, the deposit and lending interest rate spread has come down to around 5% by February 2014. We are also seeking to ensure uninterrupted credit flows to the agriculture sector, and small and medium enterprises together with other important sectors,’’said Muhith.
In this regard, he said over the first nine months of current fiscal, 78.4% of the total agricultural and rural credit target of Tk14,595 crore has been distributed. Credit flow to the small and medium enterprises up to December 2013 increased by 14.9%, year on year. Term loan in the industrial sector has increased by 3.7% in the second quarter of the current fiscal year.
It would be possible to achieve the money and credit supply targets with the improvement in external sector. We hope that broad money and domestic credit will increase in consistence with the growth and inflation targets, said the minister.
In FY 2013-14, we had approved the establishment of 9 banks in private sector including 3 under the ownership of non-resident Bangladeshis all of which are now in operation. In the meantime, these banks have opened 71 branches across the country. These banks have been asked to channel 5% of their total credit to the agriculture sector to increase investment in this sector.
