Average interest rate on bank loans and advances has come down to as low as 12% in July this year, breaking a steady trend of over 13% in last 30 months.
This is due to lack of loan demand in the industrial sector and increased inflow of low-cost foreign loans, bankers said.
The lending rate stood at 12.84% in July from 13.1% in the previous month. It ranged between 13.9% and 13.1% for the last two and half years, according to the central bank data.
Earlier, the rate came below 13% in December 2011 to stand at 12.9%.
The interest rate on deposit also fell to 7.71% in July from 7.79% in the previous month. It came down to as low as 7% in June, breaking a steady trend over 8% in last two years.
The credit growth got momentum recently, remaining far below the expected growth in the last one year due to the lending rate cut, said a senior banker.
It rose to 10% in the second week of June this year, which was in between 7% and 8% in the last one year, according to the central bank data.
In the decade of 1980's, lending rate was in the territory of 13% and went up to 15% in the decade of 1990's. The rate came down to the level of 13% in the year 1994 and continued till the year 2000.
The lending rate was lowest in between 10% and 11% during the year 2004-09. Then, it witnessed a steady trend between 11% and 12% from the year 2010-11.
The average interest rate started to grow up abnormally in 2012 and reached highest at 13.9%. The country's banks maintained higher interest rate during the year 2012-13 when the banking sector witnessed crowded credit demands. Banks also showed aggressive lending approach, causing several loan scams during the period.
Under the circumstance, Bangladesh Bank opened the door of entering short term foreign loan into the country at lower rate to rein in the aggressive lending at higher interest rates and to bring discipline in the banking sector.
“We have allowed the short-term foreign financing to facilitate local manufacturers to become competitive in the global market by reducing their business cost,” said Bangladesh Bank senior adviser Allah Malik Kazemi.
He said the foreign fund inflow, however, put pressure on the banks to cut lending rates and the rate coming down slowly.
The local banks will be forced to reduce the lending rate more in the near future to compete in the market and to achieve credit growth, he said.
“We have suggested the banks to focus their lending in the SMEs and agriculture sectors instead of industrial sector to increase the credit growth,” he said.
Local banks are now competing with the foreign loan inflow into the country at lower interest rate and struggling to get big borrowers.
They are now focusing on the SMEs and agriculture sector instead of industrial sector to increase their credit growth following the advise of the central bank, said a senior executive of a private bank.
During the FY 2013-14, banks have disbursed agricultural and rural credit of Tk16,037 crore – 110% of the target, according to the central bank data.
